A law firm principal has recommended against using a single SMSF structure to facilitate transactions with unrelated parties, suggesting the use of separate funds can achieve comparable results and reduce the risks associated with any possible member disputes.
“Certainly where there are unrelated parties [and business partners setting up an SMSF including them] is a recipe for disaster. If [you want to establish] an SMSF, it needs to include one individual or a married couple,” Sladen Legal business law principal Phil Broderick told The Tax Institute National Superannuation Conference delegates recently.
Broderick acknowledged an SMSF including a married couple is not without its issues, but is more manageable should a dispute between the parties arise.
“At least if you have a problem with a married couple, you can [perform] a family law split. That’s the easy [dispute] mechanism and it’s a well-trodden path for exiting,” he said.
According to Broderick, many of the motivating factors driving people to establish an SMSF with unrelated parties, such as to facilitate joint investment opportunities, are flawed and the desired outcome can still be achieved by other means.
“If you are thinking about a joint SMSF for investment purposes, well business partners can have their own SMSFs and [for a property, for example], they could be tenants in common [if one party owns more than 50 per cent of the asset],” he suggested.
“[You could also use] an unrelated-party company or trust if [the asset ownership] is going to be 50 per cent or less each. If [the parties] are related, brothers, for example, and they want to [implement] a joint investment in [the super environment], then they’ve got a [Superannuation Industry (Supervision) Regulation] 13.22C unit trust [they can use to do so].
“So again they can have their own SMSFs and invest in those entities which ultimately can house joint investments.”
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