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Derivatives in a SMSF

Are there any limitations on investing in options and futures in a SMSF?

These days many people are using SMSFs to hold options and futures contracts with the intent of hedging. It is common for many investors to go beyond that and trade options and futures on a consistent basis. At that point the activities appear to be business-like in which taxes need to be paid just like ordinary revenue.
 
SMSTs cannot be running a business so this could be a problem. The Australian Trade Office has made exceptions for options and futures that separate those actions from more trading and regulations that govern investing.
 
Here is what the Australian Trade Office has to say:
  • Division 295 of the Income Tax Assessment Act 1997 regulates how taxes are levied on superannuation funds.
  • Section 295-85 of the ITAA 1997 lays out the CGT rules as the means for assessing gains or losses generated by an asset of a super fund.
ITAA 1997 paragraph 295-85(2)(1) changed the rules. As a result of CGT the fund’s assets will not be assessed according to the measures below:
  • ITAA 1997 section 6-5
  • ITAA 1997 section 8-1 (how much can be deducted
  • ITAA 1997 sections 15-15 and 25-40 (profit-making undertakings or plans)

Are options and futures in SMSFs permitted under the SIS Act?

In order to determine that we need to examine what options and futures (often referred to as derivatives) are according to the SIS Act. We also need to look at anything under the Act that may restrict their use. A derivative instrument is a contract between parties that specifies conditions, in particular, dates and the resulting values of the underlying variables under which payments, or payoffs, are to be made between the parties According to the Act a derivative is a financial asset or liability which is determined by other assets. The definition of a derivatives contract is an option contract or future contract relating to any such right or liability.
 
The Superannuation Industry Supervision Act governs whether options and features are allowed in SMSFs. This Act places few limits on which investments can be included in SIS, though it is very clear about what type of structures are allowed in regards to investments. The biggest obstacle with investing in options and features is that derivatives require a margin or collateral and thus are not in accordance of Regulation 13.14 - a trustee is not permitted to give a charge over in relation to an asset in a fund. 
 An exception for derivatives does exist. Under Regulation 13.15A a trustee can provide a charge over under the following conditions:
  • the derivatives contract allows for the charge 
  • the charge meets the rules of an approved body
  • a derivative risk strategy has been established 
  • the investment follows the pre-established derivatives risk strategy
 
It seems that according to the SIS act are allowed in SMSFs as long as the above criteria are met.

Options and Futures Trading in your SMSF

Where should I turn to trade Options and Futures?
 
iMoney Wealth Management can help you will all your options and futures trading needs. We can help you to make sure that your options or futures trading complies with SMSF rules according to the ATO and assist in setting up a derivatives trading account.
 
iMoney Wealth Management Will Help you Open An Options Account or a Futures Trading Account.  Once we have opened your SMSF, we can help you to establish an Options or Futures Account with a reputable broker to use your SMSF for share, options or futures trading. 
Begin Trading Options and Futures
 
After you start your Options and Futures Trading Account, you will get an Options and Futures Trading Application that will allow you to sign in. Establishing an Options and Futures trading account can take few weeks to finalise.
 
Brokerage Rates for options and futures trading accounts vary. We will help you to find the options and futures trading platform that best suits your individual needs in an SMSF.
 
Your options and futures account will only be allowed to be entered by you. Your options and futures account broker will not be able to get into your account in a SMSF. Only the SMSF Trustee can get into an Options and Futures Account. As a result you will be able to rest easy at night knowing that your options and futures account is totally safe.
 
Accessing information of your options and futures account
 
When the year is over you will receive from your broker a file containing your transactions in your SMSF Options and Futures Account in their entirety. iMoney Wealth Management will guide you so that your SMSF meets its compliance obligations. You do not need to provide any records since your broker has your data and can make sure that your options and futures trading follows the rules set out by ATO for derivatives options and futures in SMSF.
 
Often people mistakenly are setting up an options and futures broker account in their name rather than in the name of the SMSF. That results in compliance issues with the ATO. A financial advisor from iMoney Wealth Management will assist if needed to make sure that your Options and Futures Trading Account is done right. That will help you to avoid any hassle associated with compliance issues by the ATO.
 
Download our FREE ebook explaining strategies in SMSF superannuation to learn more or book a free consultation online.
 
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