Unlisted Investments in SMSFs – What Are the Investment Rules?

Coins and trees growing from the hands of a businessman considering his smsf investment

One of the main advantages of a SMSF is the investment flexibility for trustees to invest in a wide range of investments including SMSF investments, such as unlisted investments and private company shares. Such investment opportunities and  diversification can be advantageous, however, care must be taken to ensure the unlisted investment does not breach any Superannuation Industry (Supervision) Act 1993 (SISA) investment rules.

Can my SMSF invest in unlisted investments?

The first step is to check the fund’s trust deed as this governs how the SMSF operates.

Does your fund’s trust deed allow for SMSF investments in unlisted investments such as private company shares or units in an unlisted unit trust?

Generally speaking, if the deed does not specify that the trustees may invest in unlisted investments, or any other investments of a regulated superannuation fund as authorised by the laws of Australia and or of its State or Territories, then it is not permissible.

What are the rules for investing in unlisted investments?

Investment strategy and sole purpose test

As with all SMSF investments, an unlisted investment must be in line with the fund’s investment strategy and meet the superannuation legislative requirements, including the sole purpose test.

The investment strategy must be in written format and document your plan for making, holding and realising assets consistent with your investment objectives and retirement goals. It should set out why and how you’ve chosen to invest your retirement benefits to meet these goals.

The sole purpose test ensures the fund trustees to make decisions that are in the best retirement interests of their members. As such, every investment or management decision must be consistent with this sole purpose.

SMSF purchasing unlisted shares from a member of SMSF

A SMSF cannot purchase unlisted shares from a member of the fund. Superannuation legislation only permits a SMSF to acquire an asset from a member only if it is an investment listed on a recognised stock exchange or business real property.  As such only shares listed on a stock exchange can be purchased from a member in the form of an off-market transfer.

The answer will depend on whether it is an investment in:

  • a company – a related company is where a fund member or their Part 8 Associates controls the company either under the
    • “sufficient influence” test; or
    • if the member / associates separately or as a group, have a majority voting interest (ie. over 50%);
  • a trust – a related trust is where a fund member or their Part 8 Associates controls the trust if
    • the member / associates separately or as a group, have a fixed entitlement to more than 50% trust income or capital; or
    • the member / associates have influence over the trustee / majority of trustees; or
    • the member / associates have the power to remove the trustee.

Where an unlisted investment is deemed a related investment, it is an inhouse asset (unless it’s specifically exempted from the definition of an inhouse asset) and if exceeds 5% of the fund’s assets at any time of the year, the fund is in breach.

SMSF investment purchasing precious metals and cryptocurrency

Precious metals such as gold or silver bullion and cryptocurrency can be purchased as SMSF investments, as long as they are not purchased from a member of the fund and permissible by the fund’s trust deed.

SMSF lending money to an unrelated company or unit trust

Again this will depends if the loan is to an unrelated third party – it is possible however there are strict rules that need to be adhered to. For example: is the loan permissible by the fund’s trust deed? does the loan satisfy the fund’s sole purpose test? is it part of the fund’s investment strategy? is the loan at arm’s length and are the loan terms on a commercial basis?

Annual audit requirements

SMSF investments are required to be revalued every 30 June to their market values, for the purposes of preparing their annual audited financial statements. But as unlisted investments do not have a statutory requirement to prepare accounts on a market basis, this can cause difficulties when trying to attribute a market value to them.

As such, the fund auditor will require written evidence of the following:

  • that any unlisted investments have been acquired at arm’s length and not an inhouse asset of the eg. written verification from a director of the company or trustee of the rust who is not a related party of the SMSF
  • copies of the private company’s constitution or the unit trust deed;
  • ASIC company search to confirm the officeholders and shareholders of the private company and any holding or subsidiary companies;
  • copies of financial statements of the private company or unlisted trust including evidence the underlying assets are valued at market value;
  • a share / unit price based on recent sales or purchases between unrelated parties;
  • loan agreement showing the terms of the loan.

If you have any questions or concerns in relation to the above, the Kreston Stanley Williamson team is here to assist you. Please don’t hesitate to reach out and contact us.

Kreston Stanley Williamson

Author – Anna Wong – Senior SMSF Manager at Premier SMSF Solutions

*Correct as of 25 January 2023

*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.

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