tumblr visit counter
SMSF Setup SMSF Transfer

Investing in a Private Company

Investing in Private Company Shares with Your SMSF: Key Considerations

iCare Super allows SMSF investments in private company shares, but there are essential compliance requirements to be aware of before proceeding. Here’s what you need to know:

1. Check Trust Deed and Investment Strategy

Ensure that investing in private company shares is permitted under your SMSF’s trust deed and investment strategy. iCare Super’s trust deed and investment strategy automatically include this asset.

2. Arm’s Length Transaction

Shares must be purchased at market value. Transactions should be conducted at arm’s length, meaning the purchase price cannot be inflated or undervalued.

3. Related Party Investment Limit

If the private company is a related party, the SMSF can invest no more than 5% of its total assets in that company. This 5% limit applies at any given time during the fund’s operation. Be aware that market fluctuations in other assets may impact compliance with this rule.

4. Dividend Taxation

Dividends received by the SMSF from a private company may be subject to a 45% tax rate if not aligned with arm’s length pricing.

5. Market Valuation Compliance

The key compliance challenge for SMSFs investing in private companies is accurately determining the market value of shares each year. The ATO recommends the following methods for valuation:

  • Independent Expert Valuation: If available, an independent expert valuation is the most reliable method.

  • Directors’ or Trustees’ Valuation: If an expert valuation is unavailable, provide a substantiated valuation from the company’s directors or trustees, backed by objective data, the chosen valuation method, and assumptions made.

  • Recent Share Transaction: Document the date and price of any recent transactions involving unrelated parties.

6. Professional Assistance May Be Required

Due to the complexity of valuing private company shares, consider seeking professional advice or requesting that the company’s directors provide a market value assessment and a supporting valuation report by June 30 for your SMSF auditor.

Conclusion

To avoid compliance issues, ensure that you can demonstrate a satisfactory valuation of private company shares in your SMSF.

For more information, contact us at:
Email: info@icaresuper.com.au
Phone: 03 9557 4079

 

Enquire Now

Enquire Now