When an SMSF holds an equity position in a private company or trust the identities and relationships of the other equity holders must be considered. Twice, in the last week, I have been referred to private entities where an SMSF holds 50% and other associated entities hold the balance. In one case a trust was owned equally by the SMSFs of partners in an accounting firm.

There is no problem with this where the entity holds only ungeared real property and cash – as was the initial case with both scenarios I was presented with. The problem was that each entity entered into a subsequent borrowing which immediately transformed the SMSF investment into an in-house asset.

The only resolution to this completely avoidable scenario was for the SMSFs to divest themselves of their equity positions. In one case this also involved the SMSF acquiring the business real property from the trust. So much expense and inconvenience could have been avoided by asking a few basic questions before, not after, the event.

I’m always available for a quick phone chat with any Alliance Partners who wish to check their proposed strategies.

David Busoli 0499 778 584