SMSF practitioners should be wary of the motivations of trustees who openly state the goal for their fund is to gain a benefit that runs counter to the sole purpose test (SPT), an SMSF technical specialist has warned.
Smarter SMSF education and technical manager Tim Miller said the motivation behind any SMSF transaction often became apparent in the way trustees communicated it to practitioners or the ATO.
“If they say they want to acquire an investment because they see the potential for great return and that is going to help their retirement income benefits, then bang on, that satisfies the SPT,” Miller said during a recent webinar hosted by SuperGuardian.
“If they get to retirement and make a decision they no longer want the SMSF or the investment no longer suits the fund’s needs, and pay out a benefit and subsequently move into that property, the ATO are going to want to know what was the intention from the start.
“So it depends on how you document these issues now and if we’re talking about an investment the fund has held for a significant period of time and the investment strategy identifies the fund wanted to invest in property, it will be very difficult for the ATO to argue it’s a breach of the test.”
He said identifying motives was important as he was receiving more questions, as well as seeing social media posts, which indicated people believed that while they could not live in a property they owned in their fund, this changed once they were retired.
“This is really dangerous commentary because the reality is you can’t do that. The objective of the transaction can’t be to buy property to move into when you retire because that’s not meeting the core purpose to draw down an income stream or a lump sum when you reach retirement,” he said.
“I’ve done a number of presentations to trustees who say: ‘Can we buy a property now and live in it later?’ Their purpose has already been outlined and it’s incumbent on everybody to recognise that when people are asking those sorts of questions, the answer is ‘no, you cannot do it’.
Testing motivations was essential when dealing with related-party transactions and acquiring assets from a related party, he said.
“When people are acquiring an asset from a related party, the question has to be why are you doing it,” he said.
“What is the benefit of acquiring that particular asset from the related party as opposed to acquiring that asset from somebody unrelated to the superannuation fund?
“They have to be very clear as to what their motivation is and what the purpose of undertaking that transaction will be.”
