A legal specialist has argued it is not advantageous for SMSF trustees to invest in assets through a unit trust from a Superannuation Industry (Supervision) (SIS) Act compliance perspective.
“People think that having a super fund invest through a unit trust is better from a SIS regulatory point of view. In my view it is very rarely the case particularly if it is a related trust,” Brown Wright Stein partner Matthew McKee said.
“If it’s an unrelated trust, sure, but if it is a related trust it’s actually worse,” he added.
He pointed out many SMSF trustees invest through a unit trust in the belief an individual cannot carry on a business within a super fund particularly when looking at monetary involvement in a property development project.
“It’s hard to believe, because it is such a strong conventional wisdom, super funds can carry on a business. There is nothing in the SIS Act that prevents a super fund from carrying on a business,” he told delegates at The Tax Institute National Superannuation Conference for 2025.
He pointed out this line of logic is completely flawed with regard to a related trust.
“A related trust cannot carry on a business under [SIS Regulation] 13.22C. [Further] a related trust cannot invest in another entity so there are a lot of things a related trust cannot do that a super fund can do themselves,” he explained.
“So sometimes there is actually a reason not to [use] a trust and [rather] carry on the development [inside the super fund] itself.”
According to McKee the applicable legislation can also compromise the effectiveness of an SMSF investment in a unit trust. Here he used the trust loss rules as an illustration.
“We don’t want to make a loss but if we do it is stuck in the trust. So [in the case of] syndicate owners who pour money into a venture, made no money, suffer a loss, they’re stuck.”