Buying domains with self-managed super

[Shane]

Has anyone here looked into buying domain names using a self-managed super fund?

I've tried searching, but can't find anything on this subject except for an old website which was offering bundles of domains which could be bought by a SMSF. Of course just because someone was selling them doesn't mean that a SMSF can legally hold them...

I can't really see why not though. As long as the domain is purely for investment purposes and not for personal use it will meet the "sole purpose" rule for a SMSF, and of course any income generated by the domain would have to be retained within the fund.

A SMSF is also an entity with it's own ABN, so I assume it would meet AUDA's requirements in the same way that a natural person with an ABN can.

So yeah, any thoughts? I'm in the process of setting up my own SMSF, and I wouldn't mind allocating a percentage of it to domain investment.

PS. I am a financial planner by trade.

 

[soj]

I was thinking about something like this the other day, but it was moreso similar to how the REITs operate, having a fund where people can buy into, and investments are made into websites/domains etc.

I don't know much about the SMSF rules though, so can't really help you on that. Ill get one of my mates to post up if he knows about anything, I know he was doing SMSF Compliance for a while in his last job.

 

[Chris.C]

I know nothing about SMSF's either, but something that might be a roadblock is that by my understanding, you don't really own the domain - it's just a lease. I don't know what implications this has for super investments, but I thought it might be relevant.

 

[DavidL]

Sounds interesting. Let us know what you find out

Incidentally, I bought SMSFs.com.au a while back (overpaid I think, ah well)

 

[Shane]

I know nothing about SMSF's either, but something that might be a roadblock is that by my understanding, you don't really own the domain - it's just a lease. I don't know what implications this has for super investments, but I thought it might be relevant.

Yes, you don't technically "own" the domain. From the auda policy:

A registrant does not “own” a domain name. Instead, the registrant holds a licence to use a domain name, for a specified period of time and under certain terms and conditions.

But I can't see any problem in the SMSF holding a licence to use the domain, as long as the sole purpose of holding the licence is to provide a benefit to the beneficiaries of the SMSF.

The company which is providing administration services to my SMSF does not list domains on their approved investments list, but they don't list artwork either, and under the right circumstances a SMSF can legally own artwork.

I have sought clarification from the admin company and am awaiting their response.

Anyway, I'll let you guys know what the final outcome is, because I think this could be something really interesting for many of us.

 

[snoopy]

Hard to see why it wouldn't be possible. There would be some big tax savings in structuring it in that way.

 

[Shane]

It's been a few months since I started this thread, but my SMSF is now fully operational.

Unfortunately the provider I am using for the admin/tax/audit side of things isn't keen to allow domain investment. I'm using a no-frills provider, so they like to keep it simple with shares, managed funds and property etc - stuff that they understand when it comes to the audit and tax side of things.

The good news is that no one I've spoken to can find any issues with investing in domains using your super, you just need to find an accountant who is comfortable it.

 

[DavidL]

Great thanks for letting us know!

 

[geodomains]

I'll find out as my best mate is my accountant and he set up my smsf , personally I don't think it would be a problem.

Easiest thing is to get clarification from tax office or maybe asic

Don

 

[coreyg]

are you licensed?

Cheers
Corey

 

[geodomains]

are you licensed?

Cheers
Corey

Not sure what you mean, but have abn for super fund

Don

 

[Shane]

are you licensed?

Cheers
Corey

Licensed financial adviser, yes.

Easiest thing is to get clarification from tax office or maybe asic

Don

The ATO are the ones who set and enforce the rules for SMSFs, but they don't maintain a list of what you can and can't invest in - no one does.

It all comes down to the "sole purpose test", which states that the sole purpose of the super fund is to provide retirement benefits to the fund members.

Artwork and collectibles are really good examples. Your fund can own these items, but only if they are utilised in a way that provides no immediate benefit to you, such as renting the artwork out at commercial rates with an arms-length contract in place. However if you hung the artwork in your own home, then you would be breaching the sole purpose test.

Another important factor is that your SMSF can't run or own a private business. So if your fund did own a domain, developing that domain would probably be classed as running a business.

Other than buying and selling domains, I think the only other way a SMSF could successfully invest in AU domain names would be if domain leasing became legal, as this would be no different to a fund leasing out property or artworks etc.

It was an interesting exercise nonetheless, but I think I'll stick with shares for now.

 

[geodomains]

The ATO are the ones who set and enforce the rules for SMSFs, but they don't maintain a list of what you can and can't invest in - no one does.

It all comes down to the "sole purpose test", which states that the sole purpose of the super fund is to provide retirement benefits to the fund members.

Artwork and collectibles are really good examples. Your fund can own these items, but only if they are utilised in a way that provides no immediate benefit to you, such as renting the artwork out at commercial rates with an arms-length contract in place. However if you hung the artwork in your own home, then you would be breaching the sole purpose test.

Another important factor is that your SMSF can't run or own a private business. So if your fund did own a domain, developing that domain would probably be classed as running a business.

Other than buying and selling domains, I think the only other way a SMSF could successfully invest in AU domain names would be if domain leasing became legal, as this would be no different to a fund leasing out property or artworks etc.

It was an interesting exercise nonetheless, but I think I'll stick with shares for now.

Good points one, yes smsf are audited quite often and anyone thinking of just going out and buying domains this way should be very careful.

Many a business has been caught using their smsf for the wrong reasons, whether nowingly or not.

Don

 

[AndyC]

Just wondering if anyone has received any advice from ATO or an adviser/acountant on this issue?

If you have an SMSF you could request SMSF specific advice using this form.

Unfortunately I do not yet have an SMSF. I doubt my retail super fund will have a domain product packaged up any time soon!

If anyone does get advice please do fill us in.

 

[Shane]

I don't claim to be the guru on this subject, but I am a financial adviser and I do have my own SMSF.

From my research, you'd be treading on pretty thin ice by owning domains in your SMSF. My reasons for this are as follows:

Sole purpose test

Any assets within the fund must be for the sole purpose of providing retirement benefits to the fund members. Therefore you couldn't have the super fund owning the domains and you (either personally or through your company) monetising the domains.

Furthermore, a super fund can't be seen to be "running a business", so therefore you couldn't monetise the domains through your super fund.

auDA rules

The only legitimate way to own domains within your super fund would be through purchasing with the intention of selling for a profit, or purchasing with the intention of leasing the domains to an unrelated third party.

Given that auDA's rules prohibit both of the above, you'd would be running the risk of losing your domains.

No one is going to stop you from buying domains within your fund, but everyone will see via whois that your domains are owned by a super fund, and if they were to lodge a complaint with auDA you're going to find it very difficult to explain how you're complying concurrently with the auDA rules as well as the ATO rules.

The above all relates to AU domains only. Given there are no restrictions on top level domains I don't see any reason why you couldn't run a buy & hold or buy & sell strategy within your fund.

But the issue regarding related parties would still stand, so you couldn't lease TLDs from your super fund to yourself for development. You'd have to either lease them to an unrelated party or eventually sell them.

 

[courier]

Sounds interesting. Let us know what you find out

Incidentally, I bought SMSFs.com.au a while back (overpaid I think, ah well)

Thats a cracker of a domain name there would be plenty of financials after that domain smsf nice work