SMSF trustees needs to understand some very important basics that they must meet AND DOCUMENT HOW, in the investment strategy.
-Have you discussed the set-up with a Financial Planner with relevant experience?
-Have you got a documented plan: how it operates, who is responsible for what, how is expenses etc recorded and who is paying them?
-Who owns the land they are grazed on? Who feeds them?
-Is the fund operating a business of primary production?
-From whom/where was the cattle purchased?
Please note all of this had to have been in placed PRIOR to purchasing the livestock.
You may need to ask you the following questions if you want to purchase cows or cattle:
-Does running an SMSF business take the best interests of the members into account or is there some other purpose?
-Is the business really just a hobby that the trustees have a side interest in?
There are so many traps involved. The fund may breach numerous rules if this is not done properly. The onus is on You AS A TRUSTEE TO PROVE you have considered all risks and returns, have acted as any prudent trustee would and also acted in the best interests of all members.
-Any non-arms length transaction? if yes, it is a breach.
-Any borrowing, loan, payment for goods on behalf of the SMSF with a agency type agreement in place? If yes, it is a breach.
-Any acquisition of goods purchased by a member or related party? If yes, it is a potential breach.
ATO would be asking WHY? and then HOW? Where is all the documentation, plans, risk vs return analysis.
If the trustees do not have a fully documented WHY or HOW, and consideration of the fund deed, SISA, and SISR – it will unlikely pass any ATO review and SMSF audit.