Trustees need to understand the investment structures used by their SMSFs when investing on a co-operative basis in order to avoid potential compliance issues for their fund, according to an SMSF expert.
SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said understanding the difference between a partnership and a joint venture was an important factor in helping trustees determine whether their fund was in line with the Superannuation Industry (Supervision) Act 1993 and regulations.
“Depending on the investment structures used, you may end up with compliance issues for the fund,” Colley noted in a blog post on the AMP Capital website.
He highlighted the key features distinguishing the participants of a joint venture, as opposed to those in partnership, including:
- they do not receive income jointly which means profits are not determined or calculated jointly as in the case of a partnership,
- they carry on the venture severally rather than as an entity type arrangement, and
- they are unlikely to have rights that bind each other, as is usually the case with a partnership.
Citing the ATO’s Taxpayer Alert 2009/16 – “Circumvention of in-house asset rules by self-managed superannuation funds using related party agreements” he said the ATO was particularly watchful of joint venture arrangements being used to enter into agreements where assets could be acquired to obtain taxation and superannuation benefits, thereby breaching superannuation in-house asset rules.
“Whether a joint venture or partnership is in existence for taxation and superannuation purposes depends on the facts and the relationship of the parties. What may be considered a joint venture, in some situations, may actually be a partnership,” he added.
“If there is any doubt, legal advice of an administrative ruling from the ATO should be obtained to confirm that the arrangement is as intended to avoid any compliance issues and penalties being imposed on the fund.”