If you trade many stocks eg. daytrading via a SMSF, does the Audit fees become completely ridiculous because they will need to audit each trade? I believe auditors charge you depending on how many transactions your SMSF does.
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Operating a business (such as trading shares) is not permitted within a super fund.
If you trade many stocks eg. daytrading via a SMSF, does the Audit fees become completely ridiculous because they will need to audit each trade? I believe auditors charge you depending on how many transactions your SMSF does.
You are absolutely able to trade shares in an SMSF (unless you specifically exclude it within the constitution).
Operating a business (such as trading shares) is generally not permitted within a super fund.
There is no specific prohibition from operating a business subject to:
A) it being allowed under the trust deed , and
B) the operation is for the sole purpose of providing retirement (or death) benefits for members.
The sole purpose test being the major hurdle.
Rubbish. A SMSF can't operate a business. A SMSF might be able to invest in shares subject to the investment strategy. Share trading within an investment strategy is normally ok. However operating a reading business would expose the fund to a tax issue. Remember that the SMSF laws always come back to tax law
Really - So can you please provide a specific reference in law that prohibits an SMSF carrying on a business? I will answer for you because there isn't any.
However, I would certainly agree that it would be very unrealistic to try running a normal business in an SMSF (and I am not suggesting this) because of the limitations I alluded to in my response - namely:
A) it being allowed under the trust deed , and
B) the operation is for the sole purpose of providing retirement (or death) benefits for members.
As indicated the tax offices' interpretation of point B) would be a crucial limitation - i.e. is the predominant purpose the carrying on of the business, instead of providing retirement benefits. This would almost certainly rule out most business activities.
But there are many grey areas. For example lets say your SMSF owned a block of land and (after confirming that the trust deed and investment strategy allows) decided to build a house for rental. Even though this is a one off transaction it could be classed as an enterprise yet I would suggest could be perfectly acceptable and would satisfy the sole purpose test. (Subject to the normal arms length considerations, no borrowings, etc.)
Or lets take share trading. If done often enough it could be classified as a business. At what point would the commissioner consider that the fund has crossed the line and breached the sole purpose test if at all?
So just to reiterate IMO it is the trust deed and the sole purpose test (along with the investment strategy) that provide the restriction. As always get professional guidance.
In the example of share trading there are several instances where the behaviour of the trustee/s may be a cause for concern and result in a adverse audit opinion or even a caution within a management letter to the trustee.
- The activity is conducted by one trustee (ie husband) and the other is uninvolved. Trust law requires that trustees act unanimously and decisions are made by "the trustees". This includes investment decisions. The ATO Trustee Declaration now includes caution about this issue and the loss of prudential safeguards that occurs with a SMSF. ie hubby can blow wife's $ and there is no recourse. "Equally involved" is the ATO test that reflects trust law.
- Activities that are unsupported by an investment strategy. For example if the strategy fails to address short term speculative risks
- Absence of a Risk Management Strategy in some cirumstances (eg where a hybrid / derivative / futures etc is used
- Exposure to commodity / currency etc where a RMS is not prepared that specifically addresses the precise trades taken.
- Where BOTH/All trustees lack understanding of the IS / RMS.
- Short contracts
- Use of futures
- Use of leverage
- In circumstances where the quantity of trades approaches the volume that may be indicative of the operation of share trading business.
In such cases in the past when I was also a SMSF auditor I have been known to qualify the audit opinion and report the matter for the ATO to determine later (rare cases). The role of SMSF auditor is not to determine a conclusive opinion. It is to report an opinion and facts to the Commissioner who can then form his own view.
Rubbish. A SMSF can't operate a business. A SMSF might be able to invest in shares subject to the investment strategy. Share trading within an investment strategy is normally ok. However operating a reading business would expose the fund to a tax issue. Remember that the SMSF laws always come back to tax law
Drinking and writing on Somersoft is not the greatest idea.
That's an offensive comment.
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That's an offensive comment.
Rubbish. A SMSF can't operate a business.
I will never commit to a written opinion that ANY SMSF can operate a business or operate a venture which has business like operations. Accordingly in general terms I always advise a SMSF cannot operate a business. I stand by that opinion until I give a contrary opinion to a client.