ATO, Compliance, SMSF

SMSF businesses draw SPT focus

SMSF business sole purpose test ATO Accurium Anthony Cullen

Running a business inside an SMSF will attract intense ATO scrutiny to ensure the action does not breach the sole purpose test.

A senior technical expert has confirmed running a business in an SMSF does not automatically constitute a breach of the sole purpose test (SPT), but warned the practice will attract intense scrutiny from the ATO to determine if there are compliance issues.

“If your fund deed and investment strategy allows you to run a business, then you potentially can make that decision. But the ATO very clearly says if you are going to run a business in your SMSF, we are going to look at it and we are going to look at everything that’s [involved to see if there is an SPT breach],” Accurium senior SMSF educator Anthony Cullen told attendees of a webinar he hosted today.

“[It said] we’re going to look at who you’re employing. [For example], if you’re employing family members, have you employed the right person for the fund or have you made that decision to employ your family member so you can keep it all in-house.”

Cullen pointed out the regulator will also examine elements such as the remuneration level involved and whether market rates are being used or if there is an incorporated premium.

“[It will] look at other things like whether the business you’re running would normally be [considered] a business or whether or not it would be [seen as a] hobby or pastime, and also whether you are conducting similar types of businesses outside of the self-managed super fund. So [the regulator] would question why you are [running the business] in your fund if you already have a business structure [outside of the super system],” he said.

According to Cullen, the ATO website details additional areas that would attract scrutiny, including whether borrowing is involved for the business being run out of the SMSF.

“So can you run a business out of your super fund? Potentially. Should you? Probably not,” he said.

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