Check The Trust Deed Before Considering Joint Venture Projects

The management of a superannuation fund is now a responsibility that really demands the skills of a specialist. Self-managed superannuation funds are often tied to family relationships and trusts, making the burden of any bad investment decisions very difficult to bear, linked as they are to emotional attachments. To enter into joint ventures with super funds without understanding the compliance issues will have long-term consequences for everyone involved, and while on the surface these arrangements may seem to be beneficial to both parties, professional advice at the beginning of any joint venture project will save a lot of anguish and finger-pointing should anything go wrong.

Self managed superannuation funds are regulated by the Australian Taxation Office (ATO) which has a more restrictive view of what constitutes a joint venture than what is commonly accepted. This view is clearly set out in GST Ruling 2004/2. Before you enter into any agreements you should make sure the joint venture is a legitimate one or if it is a partnership. Checking with DIY super fund management professionals is to your advantage.

The ATO is looking for a written agreement that shows clearly that the following arrangements are in place:

=> A sharing of product or output in defined portions

=> The existence of a specific economic project as opposed to a continuing business

=> Joint control of the venture

=> Well-defined separation of interests, rather than a joint undivided interest, in assets contributed to the venture

=> Joint venture participants are usually liable for their own debts which they incur individually as principals

Fund managers must not lose sight of the purpose of establishing the fund in the first place, and that is to provide the members with an income in retirement. For this reason, there are a number of hoops to jump through before the SMSF can comply. The trustees must scrutinize both the super laws and their trust deed to check:

=> does the venture meet the sole purpose test i.e. is the purpose a retirement income, who are the other parties in the joint venture and would they then be running a business?

=> the fund's investment strategy to make sure the assets aren't used as security to borrow

=> is there a clear separation of member personal assets and super fund assets i.e. are all dealing at arm's length and meeting the in-house asset tests

Before entering into any joint venture arrangement, professional advice should be sought and written agreements prepared. SMSF investors should be very cautious as any step in the wrong direction could leave their fund non-compliant, and expose the members to unnecessary tax liabilities.