Agency agreement central for building work

SMSFs related-party builder

SMSFs can use a related-party builder for construction work, but must have clear arrangements around the purchase of materials and terms of the contract.

SMSFs are free to engage a related-party builder to undertake construction work, but to avoid breaching superannuation laws must ensure that during the course of any work the fund does not acquire any materials from them, according to a lawyer.

Cooper Grace Ward senior associate Keeghan Silcock said there was no general prohibition against an SMSF engaging a related party to provide services, including using a related-party builder to do construction work, but the acquisition of any materials for that construction had to occur under specific circumstances.

“There is a prohibition against an SMSF acquiring assets from a related party,” Silcock said in a post on the law firm’s website.

“So, if you are engaging a related-party builder to provide services to your SMSF, it’s important that in the provision of those construction services, the builder does not also provide goods and materials to the SMSF.”

She noted that since the provision of goods and materials was usually part of the provision of construction services, SMSFs should use an agency arrangement with the related-party builder, which makes the latter an agent of the fund for the purpose of acquiring materials required for the construction.

This arrangement would be distinct and separate from the building contract between the SMSF and related-party builder and both parties should comply with the terms of the agency so the builder only acquires goods and materials as an agent for the fund and does not provide them directly to the fund itself.

“To ensure that the parties properly comply with the terms of the agency deed, the related-party builder would need to contract with the other parties on behalf of the SMSF in the name of the SMSF,” Silcock said.

“All of the invoices for goods and materials should be issued to the SMSF in the fund’s name itself and not to the builder.

“This can add an extra layer of complexity to the building arrangements and it’s something that would need to be not only established properly from the outset, but also then complied with throughout the course of the build.”

She added that outside the agency arrangements, SMSFs engaging with a related-party builder should also ensure the terms of the building contract are on arm’s-length commercial terms and independent third-party evidence is available to verify this.

“You also need to ensure that the related-party builder and none of the other suppliers or parties involved in the build put a charge on the assets of the fund as that can cause compliance issues for the fund,” she said.

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