Can someone invest into Franchise using SMSF

I am interested to get a view on purchasing a Kim franchise from SMSF.

What are the risks and also how to do this.

 

Your heading contradicts the content of your post

who is buying from whom?

 

I would like to use my super and convert it to SMSF and buy a Jims Franchise.

 

It could be possible but probably not advisable.

Seek legal advice.

 

Are you able to purchase a business within an SMSF without breaching the rules?

 

Do you mean "can a SMSF operate a business?"
Yes it is possible, and can be done without breaching the rules.

 

Interesting! Very keen to hear a smidge more if you care to share @Terry_w !

 

A Trustee could operate a business, but only if the trust deed permits. A trustee might also own shares in a company which operates a business.

 

Can you please explain how we can do this

 

This is what you need expensive legal advice for.

 

Well I had advice and they told me its risky and cannot be done.

 

But other people such as SMSF experts are saying they can do it. So I am confused. It seems not everyone is agreeing on a point and can provide def answer.

 

Well, the ATO even think a business can be carried on by a SMSF.
Carrying on a business in an SMSF

But just because it can be done doesn't mean it should be done. You could seek advice from SMSF specialist law firm such as DBA Lawyers.

 

A SMSF lawyer is not going to be able to offer free advice on an entity (ie a SMSF) that they don't have all the information on. Details such as the wording in the trust deed may change what is possible for your SMSF, and they'd be doing the wrong thing by you guessing on your situation and advising accordingly (and their insurer would be very displeased on such conduct). If you fancy dabbling in a franchise, take the advice of @Terry_w and seek specific legal advice. Your SMSF will be able to use its funds to pay the invoice charged by the lawyer for the advice. It'll likely turn out to be the best money you ever spent if you confirm what you are able to do with your SMSF and end up investing wisely and make a killing in profits. DBA Laywers (which @Terry_w mentioned) are well-known as lawyers specializing in SMSFs.

 

Ask two lawyers, get two different answers and three bills.

 

One lawyer in the town; poverty. Two lawyers in the town; prosperity.

The trouble with law is lawyers.

Not mine. Told to me by a lawyer. He's prosperous I believe.

 

Can a SMSF purchase a franchised business that will be operated by a trustee Director or related party ? Probably not, but perhaps. Its arguable too that the SMSF may fail its covenant (s52 SIS Act) related to investment strategy if a franchise fee does not comply with the definition of an investment AND is permitted by both the deed and the approved investment strategy. Each agreement etc may vary and its details will be important.

The critical issue occurs with paying a related party ie wages. This could be a breach but not always. And the red flag event is registration for PAYG withholding. Super funds can employ people - Look at Sun Super !! I have a issue with super guarantee charge obligations ...Are they a contribution or a rollover if the funds pays someone ?? (Read the relevant law)

However a SMSF could own a franchise and retain all the net income. I have a client who owns a business in his SMSF. The business owns poker machine licenses and leases them. It produces a good income and is taxed at a low rate. But the member cant take any of the profit for themselves. These arrangements work best for passive businesses or owning a property that is leased to a business (eg a hotel) Other key concerns would occur if the SMSF borrowed money through normal trade terms etc. There are loads of concerns listed by the ATO here : Carrying on a business in an SMSF

The advice would be quite costly and should be given by a superannuation specialist lawyer. eg DBA lawyers etc.

I often find people ask this question when they want access to super as an alternative to finance etc These are all the wrong reasons to access super if its to also buy a job. Super is not an alternative to personal savings etc.