Financial Planning

Steven and Sandy established their self‐managed super fund more than ten years ago. The fund has assets of $400,000, which currently has a majority exposure to equity ($250,000) plus fixed interest securities ($100,000) and cash of $50,000.

Steven and Sandy have been operating a soap making business which has expanded to the point where they are needing bigger premises. Sandy’s brother Sean has a factory which looks as though it will suit what they need. Sean has indicated he will sell the factory to them for $450,000. Sean is also a little strapped for cash and he has some artwork that would look good in the factory office. He has indicated he will sell the artwork to the SMSF for $60,000.

Steven and Sandy originally established the SMSF themselves with a little bit of advice from the accountant who does the accounts for their soap business. However, they recognise that the factory decision requires some more thought and they have come to you for advice. The broad question they have posed is what do they need to consider in relation to the self-managed superannuation fund making the investment in the factory? More specifically they want advice on the following issues:

1. Is it possible for the investment in the factory to be undertaken by the SMSF? That is, do the rules allow it; what specifically are the relevant rules; and can Steven and Sandy get to use the factory for their business if the SMSF invests in the factory? (15 marks)
2. Can their SMSF making the investment in the artwork? (5 marks)

In each case ensure you justify your answer clearly. These are relatively short questions with potentially long answers. You need to be focussed in your answer while covering the required areas. Your combined answer should be no more than 800 words. You don’t need to provide information about your company, expertise, fees of the advice, etc. – we will assume this is being provided. Your focus needs to be on the specific questions and answering them in a clear, concise manner.

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