YOUR SCENARIO

You have been doing some work for a pharmaceutical private company which appears to have tremendous growth potential in the future. You have been invited by the board for an opportunity investing into the said company.

QUESTION

Can your SMSF invest into private companies that you are doing work for?

ANSWER

Short answer is yes. There are no express provisions in the SIS Act to stop you from investing in private companies.

TAX TIPS

In order to ensure prudent decision-making regarding investments in private companies within your SMSF, it is imperative to request that your fund’s trustee duly considers the Investment Strategy. This strategy should encompass a comprehensive evaluation of factors such as risk assessment, diversification, liquidity, and cash flow pertaining to your fund.

COMMONS TRAPS

Our office has seen such investments having caused the following real issues:

• The trustee’s decision to join the board of the private company, which can trigger concerns regarding related party transactions and compliance with the in-house asset rule.
• The trustee’s failure to obtain necessary supporting documents for the investment valuation as of 30 June, leading to valuation issues within the fund.
• The fund’s auditor expressing discontent with the investment and issuing a qualified audit report, thereby compelling the trustee to transfer or divest the investment. This situation can result in capital gains tax implications and create compliance challenges.

DISCLAIMER

GW Capital Group Pty Ltd General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.