SMSF members with investments in a private or unlisted company need to be advised that any shares given to their fund need to be allocated directly to the fund and not passed on by the member, a technical expert has pointed out.
SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said there were a number of benefits to investing in a private or unlisted company, including the ability to transact off market at lower costs and to gain franking credits and capital gains benefits, but there were limitations that could create issues for SMSF members.
Speaking during a webinar today, Colley noted employee share schemes were an area where SMSF members were making mistakes and advisers could provide more direction.
“The issue with employee share schemes is that because they are shares in a private company, some employees think they can nominate their SMSF and transfer the shares they receive in their own name to the fund just by assigning ownership of the shares to the fund,” he said.
“We see clients getting into trouble doing this because, technically, the shares are issued to an individual only.
“If you are giving advice in this area, you need to make sure the way in which the shares are issued is to the SMSF and not to the individual, and the member will end up with a more constructive transaction going to the fund.”
He also pointed out the acquisition of shares in a private or unlisted company can be difficult where a related party is involved or the transaction is dependent on other shareholders.
“There are restrictions if assets are acquired by the fund from related parties and there are difficulties in buying and selling shares in these companies because of the need to value the shares,” he said.
“Transferring the shares between related parties may also not be possible, particularly if the shareholder and other related parties don’t control the company as it can’t be treated as an in-house asset in that circumstance, and there may need to be approval of other shareholders before the transfer of shares can take place.”
