Short answer
Generally no. Super law prohibits an SMSF from acquiring assets from a related party, with exceptions such as listed securities, business real property and certain in-house assets. Permitted acquisitions must be at market value. Private company shares are not listed securities, so trustees need advice on whether an exception applies. We value the shares and do not give advice.
What does super law say about buying from a related party?
Section 66 of the SIS Act generally prohibits a trustee from acquiring an asset from a related party of the fund. The prohibition covers any asset other than money. The ATO's guide to valuing SMSF assets says acquisitions between an SMSF and its related parties need a valuation, and that permitted assets must be acquired at market value.
Who counts as a related party is set by the SIS Act. The trustees' legal adviser can confirm it for the people and entities involved.
What are the exceptions?
- Listed securities, acquired at market value.
- Business real property, acquired at market value.
- Certain in-house assets, such as an investment in a related party or related trust, subject to market value and the 5% in-house asset limit.
Private company shares are not listed securities. Whether a related-party purchase of them fits an exception is a legal question for the trustees and their advisers.
Why does market value matter for the exceptions?
The permitted exceptions depend on paying market value. A valuation of the shares at or close to the acquisition date is evidence of what a willing buyer and a willing seller dealing at arm's length would agree, which is the super law test in section 10 of the SIS Act. The ATO also says investments must be made and maintained on an arm's length basis.
If the shares count as an in-house asset, the ATO says all assets are valued at year end to test the 5% limit, so the value matters again at 30 June.
We value private company shares and unit trust units for related-party transfers, including in-specie transfers into a fund. Our guides to related-party transfer valuation and private company shares valuation explain what we provide.
Who decides whether the purchase is allowed?
The trustees do, with their legal adviser and auditor. We value the shares. We do not give legal, tax or financial advice, and we do not say whether a purchase is allowed or whether to go ahead. The same applies to accountants and administrators arranging a transfer: the valuation supports the record of the transaction, and the legal question stays with the legal adviser.
Read the full guide
- Private company shares in an SMSFShares in an unlisted company need a market value at 30 June like any other fund asset. Here is how they are valued, what the auditor looks for, and...
- Unit trust valuation for SMSFsUnits in a private unit trust need a market value at 30 June like any other fund asset. This guide explains where the value of a unit comes from...
- Related-party and in-specie transfer valuationsWhen an SMSF acquires an asset from a related party, or an asset moves in specie into or out of the fund, the price is tested against market value at...
- In-house asset test valuationsAn SMSF's in-house assets must not exceed 5% of the fund's total assets at market value, tested at year end. A sound valuation of the related company...
- How we value SMSF holdingsThe methods we use, what we analyse and what the report contains.
- Fixed fees, confirmed before we startFixed fees set by what the fund holds. No hourly billing.
Related questions
Does the price have to be market value if the related party agrees to less?
Yes, for the exceptions that apply. Listed securities and business real property must be acquired at market value, and an in-house asset must also meet the market value requirement. A related party agreeing to a different price does not change the test.
More short answers
- What is market value for an SMSF?Market value for an SMSF is the amount a willing buyer could reasonably be expected to pay a willing seller, assuming they deal at arm's length...
- How are unlisted shares in an SMSF valued?Unlisted shares are valued by considering the company's assets and the consideration paid, because there is no quoted price, the ATO says. Evidence...
- Who can value SMSF assets?Trustees are responsible for valuing SMSF assets. Depending on the situation, the ATO says the valuer can be a registered valuer, a professional...
- Does my SMSF need an independent valuation?Usually no. The ATO says trustees are not required to use a qualified independent valuer for the fund's accounts and statements. The law requires one...
Last updated . General information only, not advice about your circumstances. A valuation depends on the facts of the business and the purpose it is for.