Co-directors and related parties

A friend and I are co-directors of a small private business. Surely we’re “related parties” for super law purposes?

Actually no. 

Being co-directors, or even co-shareholders, in a company (large or small) doesn’t automatically make people related parties. And that’s the case even if you control the company and the company itself is caught as a related party. Whether or not a person is a related party of a particular SMSF is important because it can impact the SMSF’s dealings with that party – such as acquiring assets from them or entities they control.

So it’s important to understand that two people who are directors of the same company are not automatically related parties. Where that simple rule might get confused is if there are other factors that make them related parties.

A classic here would be if the two individuals also owned (say) property together as tenants in common. Perhaps they co-own and co-direct their small business but they have (personally) bought the property from which it operates together as well. This will make them recipients of joint income (the rent paid by their business to themselves as landlords). That’s enough to make them “partners in a partnership” – and unfortunately partners are always related parties of each other. 

This would be the same regardless of what they owned together – it could be completely unrelated to their business venture. 

For example, if they shared ownership of a holiday house, that would also make them partners if it was ever rented out and generated income. It’s the receipt of shared income that creates the problem, not the closeness of their relationship or the extent to which their financial fortunes are intertwined.

And of course, don’t marry your friend’s sibling. That will instantly make you “relatives” and at that point, you’re definitely related parties no matter what you do together financially.

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