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Compliance, Superannuation

Personal situation not a sole purpose bypass

sole purpose test

SMSF trustees moving lumpy assets into a fund are becoming too relaxed in overlooking the sole purpose test in favour of personal circumstances.

SMSF trustees will have their motivation for moving lumpy assets into their fund tested and will not be able to rely on personal circumstances to avoid a potential breach of the sole purpose test, a technical manager has warned.

Colonial First State head of technical services Craig Day said SMSF trustees dealing with lumpy assets, such as real property, collectibles, and shares or units in unlisted unrelated and related companies and trusts, have been known to take a relaxed approach when adding these types of items to their fund.

“When people start dealing with lumpy assets their approach can get a little bit ‘how are you going?’ sometimes and we do see people who find themselves in a spot of bother and they would like to start transferring assets into their SMSF for reasons that don’t neatly align with those core provisions of the sole purpose test (SPT),” Day said during a presentation at the recent Tax Institute National Superannuation Online Conference.

“An assessment of the SPT is based on an objective analysis of facts,” he added.

“When we are determining the subjective purpose about why a trustee did something, we don’t look at personal motivations but rather all the objective facts that surround that particular circumstances, and we objectively determine the person’s purpose must have been.

“What trustees say is irrelevant. We look at everything and take into account all those external circumstances to decide what that person’s purpose must have been, and if that does not align with retirement, they have problem with sole purpose.

According to Day the SPT continues to be the elephant in the room when moving lumpy assets into an SMSF, and reminded attendees at the conference the test “applies to all trustee activities, including the fund’s investment activities, and so any maintenance of the fund, even a decision to acquire an asset must comply with the SPT.”

“An asset must be acquired for sole purpose of providing retirement benefits – that is the sole purpose, any parallel purposes are a breach and only reason why you would acquire an asset is to provide one of that core purpose,” he concluded.

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