Investing in a Private Unit Trust

A unit trust is a unique investment or business structure in which investors hold units instead of shares. In a private unit trust, these units are not traded on a public exchange, and the trust remains exclusive to a select group of individuals or entities known as unitholders. This closed structure allows them to pool their funds for investments in various assets, often serving specific purposes like property development, venture capital, or other business ventures.

Can SMSFs Invest in Private Unit Trusts?

The ability of a Self-Managed Superannuation Fund (SMSF) to invest in a private unit trust hinges on several factors, including the fund’s trust deed, the Superannuation Industry (Supervision) Act 1993 (SISA), and the fund’s investment strategy. Generally, SMSFs are permitted to invest in private unit trusts, provided specific conditions are met.

Trust Deed and Investment Strategy:

For an SMSF to invest in unit trusts, the trust deed must explicitly permit such investments. Additionally, the investment should align with the fund’s overall strategy, considering factors like risk profile, liquidity, and diversification.

SISA Regulations:

SMSFs must adhere to regulations outlined in the SISA, which includes restrictions on investments in related parties. Private unit trusts may be considered related parties, necessitating compliance with specific rules such as in-house asset rules and NALI rules.

Sole Purpose Test:

To comply with regulations, all SMSF investments must pass the Sole Purpose Test, indicating that they are made solely for providing retirement benefits to members.

Arm’s Length Transactions:

Transactions between the SMSF and private unit trust should strictly adhere to the arm’s length principle to avoid potential breaches of superannuation laws.

Unit Price:

SMSF trustees are required to furnish unit price evidence to the SMSF administrator and auditor at the end of the financial year. This includes unit trust financial reports, tax returns, general ledger, and other relevant documentation.

While SMSFs offer flexibility in investment choices, investing in private unit trusts demands careful consideration and adherence to regulatory requirements. Before proceeding, SMSF trustees should seek professional advice from specialists in SMSFs, financial advisors, and legal experts to ensure compliance and make informed investment decisions.