Gaining greater control and investment flexibility are often significant motivators for people setting up a self-managed superannuation fund (SMSF). SMSFs provide the ability to invest in a wide range of investments, including direct property, unlisted investments and private company shares.
These types of investments may not be as accessible via a public offer fund. While SMSFs provide an opportunity to invest in alternative investments such as private company shares, trustees should be careful not to breach any Superannuation Industry (Supervision) Act 1993 (SISA) investment rules.
Investing in private company shares may present SMSF trustees with an opportunity to diversify the fund's portfolio and potentially achieve higher risk-adjusted returns. The ability of the trustee to be able to invest in private company shares using their SMSF will depend on whom the trustee is acquiring the shares from and whether the shares are in a related company.
What are the rules surrounding the purchase by the SMSF trustee?
An SMSF trustee cannot ordinarily acquire an asset from a related party. One exception to this rule is listed shares, which an SMSF trustee may acquire from a related party. It is not uncommon for an SMSF trustee to acquire listed shares from a related party via an in-specie contribution or a direct purchase at market value. Tax Ruling TR 2010/1 confirms that the acquisition of a listed share (or any asset) below market value would be considered a contribution.
A purchase of listed shares from a member or relative of a member above market value would likely breach SIS restrictions relating to providing financial assistance to a member or relative.