SMSF Technical Education & Strategies

Can your SMSF invest in shares with discount cards ?

The issue of a SMSF buying shares in a publicly listed company, which also offer a “discount card” is one which is sometimes the subject of some confusion.

It can be claimed by some that this would be a contravention of the sole purpose test, and would not be allowed. Thankfully, the ATO issued some guidance some time ago on how they are treating this transaction.

Essentially, the ATO are stating that trustees of SMSFs may acquire publicly listed discount card shares, provided the investment is in accordance with the fund’s investment strategy, and the SMSF does not participate in a discount plan where the trustees agree to a regular debit of their dividend payments.

Not allowed if there’s a regular debit of dividend payments

This is a function whereby the purchaser of a nominal number of publicly listed Discount Card shares entitles the shareholder to participate in the Shareholder Discount Plan provided they agree to a regular debit of their dividend payments. The shareholder may then obtain discounts on purchases from particular stores.

This type of transaction is not allowed, as the discount shareholder card can not be viewed as an incidental benefit to a member because the dividend payments resulting from the shareholding are reduced in order to pay for participation in the discount shareholder plan.

This is a direct use of the fund’s income to pay for a current benefit enjoyed by a member and is not consistent with the sole purpose test which requires the trustee to ensure that the fund is maintained solely for at least one or more of the specified core purposes.