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Stephen Wight

Aug 10, 2022

Does a SMSF have control or significant influence

in SMSF Technical Forum

The SMSF currently has an investment in a company with its holding being below the threshold required for the investments to be classified as a related party for the purposes of SIS (50% ownership by the fund and its related parties).

However, there is the potential for the investments to be considered a related party on the following basis:

· A related party includes “any company the member or their associates control or influence”.

· A member of the fund is currently one of the two directors in the company

· The member is also the chairperson

· Under the constitution of the company the Chairperson has the casting vote in the event of a tie.

· The directors have the power and duty to manage and control the business and affairs of the company

We note also that the directors may be removed from office by the passing of a resolution of shareholders (the fund and related parties have less than 50% of voting rights)

I am of the view that the investment based on the above would be considered to be an investment in a related party. Does anyone have a contrary view?

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Aug 12, 2022

Hi Stephen

Yes I agree with you that the company would be considered a related party on the basis that the members is the chairperson of the company & that they have the casting vote in the event of a tie.

Section 70E(1)(a) of SIS states:

"For the purposes of sections 70B, 70C and 70D:

(a) a company is sufficiently influenced by an entity or entities if the company, or a majority of its directors, is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity or entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts); and

(b) an entity or entities hold a majority voting interest in a company if the entity or entities are in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the company."

Thanks

SMSF AAA