Joint Venture Super Funds

SMSF Managers Must Know The ATO Rules Around Joint Venture Projects

At first glance, it seems reasonable that self managed super funds would be a good vehicle to partner with as an investment strategy that could be beneficial to both partners. Often, these funds have large amounts of capital that, while not necessarily lying idle, may be able to access a higher return on investment in a venture that is a little more speculative than the traditional vehicles. If there is a benefit to both parties, vested interests may adopt the attitude that there could be no harm done to either side in such a venture. There are traps, however, in taking this approach.

Self managed superannuation funds are regulated by the Australian Taxation Office (ATO) which has a more restrictive view of what constitutes a joint venture than what is commonly accepted. This ruling is set out quite clearly in the GST 2004/2 legislation. When managing DIY super Brisbane fund managers considering entering into joint venture arrangements must first examine whether the situation they are about to enter is a genuine joint venture or is, in fact, a partnership.

The ATO is looking for a written agreement that shows clearly that the following arrangements are in place:
=> A sharing of product or output in defined portions
=> The existence of a specific economic project as opposed to a continuing business
=> Joint control of the venture
=> Well-defined separation of interests, rather than a joint undivided interest, in assets contributed to the venture
=> Joint venture participants are usually liable for their own debts which they incur individually as principals

Fund managers must not lose sight of the purpose of establishing the fund in the first place, and that is to provide the members with an income in retirement. For this reason, there are a number of hoops to jump through before the SMSF can comply. The trustees must scrutinise both the super laws and their trust deed to check:

=> does the venture meets the sole purpose test i.e. is the purpose a retirement income, who are the other parties in the joint venture and would they then be running a business?
=> the fund’s investment strategy to make sure the assets aren’t used as security to borrow
=> is there a clear separation of member personal assets and super fund assets i.e. are all dealing at arm’s length and meeting the in-house asset tests.

Before documents are prepared, you should always consult a professional before you enter into any sort of joint business arrangement. SMSF Brisbane investors should be very cautious as any step in the wrong direction could leave their fund non-compliant, and expose the members to unnecessary tax liabilities.