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Sam Bhullar

May 02, 2024

Investment in a unlisted unit trust

in SMSF Technical Forum

A super fund has invested in an unlisted unit trust, about 40% of the fund’s value. It is unlikely that the unit trust is a related party, Iet’s assume that the super fund does not have a majority ownership or control.

The unit trust is a non for profit fund that runs projects for social impact. The Unit Trust runs a Disability Housing, Aged Care Centre, meal delivery service for NDIS participants, and early childhood education and care centre.

The Unit Trust is also managed by a fund manager.

For a start, are super funds allowed to invest in something like this?

1 comment

Comments (1)

THE AUDITORS INSTITUTE

May 02, 2024

Hi Sam

The SIS sections / regulations to are (per the audit report):

Section 62:

"The fund must be maintained for the sole purpose of providing benefits to any or all of the

following:

fund members upon their retirement

fund members upon reaching a prescribed age

the dependants of a fund member in the case of the member’s death before retirement".

Regulation 4.09

"Trustees must formulate, regularly review and give effect to an investment strategy for the

fund".

SIS regulation 4.09 re the investment strategy requires the trustee to consider the return from investments. Arguably if the unit trust investment is unable to provide a "return" to the Fund (eg distributions or capital gains) then it cannot be invested in.

Section 62 of SIS is all about the Fund providing benefits to members at a certain age or to dependants at death.

My view is that if the unit trust investment complied with the Fund's investment strategy then the Fund should be able to invest in it. I have not seen a SMSF invest in a not for profit business before so the trustees should obtain legal advice before making the investment.

If other forum members have a view please let the forum know.

Thanks

The Auditors Institute