SMSFs can carry on a business providing the business is allowed under the trust deed and operated for the sole purpose of providing retirement benefits for fund members.

Carrying on a business through an SMSF does have restrictions that other businesses do not have, such as entering into credit arrangements or having overdrafts. SMSF trustees that carry on a business through their fund must adhere to the sole purpose test.

The ATO looks for cases where:

• the trustee employs a family member;
• the ‘business’ is an activity commonly carried out as a hobby or pastime;
• the business carried on by the fund has links to associated trading entities;
• there are indications the fund’s business assets are available for the private use and benefit of the trustee or related parties.

The same regulatory provisions still apply to funds that carry on a business, i.e, SMSF investments must be made on a commercial ‘arm’s length’ basis, business activities must be conducted following the SMSF’s investment strategy, collectables and personal use assets cannot be displayed at the business premises and so on.

The SMSF cannot be involved in the following business activities:

• selling an SMSF asset for less than its market value to a member or relative of a member

• purchasing an asset for greater than its market value from a member or relative of a member
• acquiring services above what the SMSF requires from a member or relative of a member
• paying an inflated price for services acquired from a member or relative of a member.