SMSF investments in unlisted shares or units in a “private” unit trust are generally permissible subject to the deed, investment strategy and acquisition source but should also be considered in light of tax and audit requirements.

Such entities often have a tax lodgement date that is later than the SMSF’s. This is particularly problematic when the SMSF is an October lodger as the accountants responsible for producing the investment entity’s accounts may not feel inclined to bring forward their completion to assist the SMSF to satisfy this. If the SMSF misses the October lodgement date then it will be an October lodger next year as well. It’s easy to see how this situation could become permanent, eventually resulting in ATO penalties. A solution is to lodge the SMSF return then redo the Fund accounts when the accounts for the investment entity have been completed. This will reinstate the standard SMSF lodgement date for next year which, hopefully, will avoid the problem going forward. This strategy requires the auditor’s agreement so is not guaranteed and, in any case, will involve extra cost. It may, however, be the only compliant alternative.

Another issue is the increased scrutiny of the underlying investments of the entity. Auditors now require justification for the value placed on the shares/units held by the Fund and will often require a similar level of justification as they would for direct Fund investments. They will generally also require some acknowledgement in the investment strategy of the extra issues surrounding the interposed entity which, incidentally, is incorporated in the latest version  of our Investment Strategy tool.

In summary, this type of investment can have many benefits but may require a little more ongoing effort.