Business as usual for Cleardocs SMSF deeds: Latest guidance from the ATO about SMSFs running a business

Some new comments on the ATO's website have caused some commentators to query whether the ATO has relaxed its position on running a business in a SMSF.

In fact, the ATO's view is consistent with its past musings, and compliance with the relevant super laws remains the key.

 

What's the issue?

Some observers have commented that the ATO may be softening its approach to SMSFs running a business. Their comment is based on a page on the ATO website which states that:

  • although the law does not prohibit running a business;
  • the activities undertaken by the Trustee(s) in running the business might cause the SMSF to run into problems.

Maddocks considers that — on the information available — the ATO has not changed its view. Incidentally, Maddocks advises that the recent ATO comments do not require a change to the Cleardocs SMSF deed.

ATO's old view

The ATO's previous position on SMSFs running a business was summarised in its (now outdated) publication Self Managed Superannuation Funds - Roles and Responsibilities of Trustees:

A possible indication that the sole purpose test has been contravened is where a fund is running a business as part of its investment strategy. If a superannuation fund is conducting a business, it may not be administered for the sole purpose of providing benefits for the members and beneficiaries of the fund[1].

Importantly, even under this old view of the ATO, the ATO never went so far as to say that SMSFs running a business would contravene the SIS Act or Regulations.

ATO's current view

The ATO's current publication Running a self-managed super fund - Your role and responsibilities as a trustee does not contain the above statement. It doesn't discuss SMSF's running a business except to say that:

Money belonging to your SMSF can't be used for personal or business purposes under any circumstances[2].

However, the page on the ATO's website entitled 'Carrying on a business in a self-managed superannuation fund' outlines the ATO's current view on this issue. In short, the ATO's view is that:

When determining compliance with the regulatory provisions it is the activities of the trustee that are examined rather than whether a business is being carried on by the SMSF[3].

This statement is not a green-light for SMSF trustees to start running a business through their SMSFs without regard to the regulatory provisions.

SMSF trustees still need to observe the sole purpose test and the other regulatory provisions including:

  • prohibitions on remunerating trustees (or directors of the trustee);
  • prohibitions on members of the fund employing one another (unless they are related);
  • prohibitions on the SMSF borrowing money (subject to limited exceptions involving acquiring an asset, see earlier ClearLaw articles); and
  • prohibitions on the SMSF purchasing assets from related parties (subject to limited exceptions).

It is also worth emphasising that the relevant provisions in the SIS Act have not changed. Also, although some commentators have referred to an ATO ruling, the ATO has in fact not released a ruling on the topic).

Does the Cleardocs SMSF need to be changed?

Maddocks considers that the broad general powers given to the Trustee under an SMSF deed are sufficient to engage in the activities necessary to run a business. However, any general powers of the trustee are subject to superannuation law generally, including strict compliance with the sole purpose test and the other regulatory provisions.

In any event, Maddocks recommends that you should seek advice before deciding to run a business through an SMSF.

More information from Maddocks

For questions or more information about the above article, please call Maddocks in Melbourne (03 9288 0555) and ask for a member of the Superannuation Team.

More Cleardocs information on SMSFs

You can read other articles concerning superannuation and SMSFs here.

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[1] ATO publication, 'Guide for SMSF trustees - Role and responsibilities of trustees', July 2007, page 11.
[2] ATO publication, 'Introduction for SMSF trustees - Running a self-managed super fund - Your role and responsibilities as a trustee', June 2010, page 5.
[3] ATO website available at: http://ato.gov.au/superfunds/content.asp?doc=/content/00241937.htm