Regulation, Superannuation

Current-day benefits can be okay

benefits sole purpose test

SMSF members can enjoy present-day benefits from investments in certain circumstances without breaching the sole purpose test.

The director of a Perth-based accounting and advisory firm has confirmed superannuation legislation does allow SMSF members to enjoy some types of current-day benefits associated with a particular investment without breaching the sole purpose test.

Cooper Partners director and head of SMSF and succession Jemma Sanderson told delegates at The Tax Summit recently hosted in Sydney by The Tax Institute that this situation is allowable under section 62 of the Superannuation Industry (Supervision) Act, which deals with the sole purpose test, as long as the member’s future retirement savings are not impacted in a detrimental manner by the current-day benefits.

Sanderson pointed out this element of the sole purpose test provisions was illustrated several years ago through investments in a particular Australian equity.

“Who remembers the Coles Myer discount card? That was one of the issues [the ATO] looked at and the prompt for releasing [guidance on this matter],” she said.

“So a lot of self-managed funds would invest in Coles Myer, get the discount card and then use it to get those discounts, which was great.

“But then they changed the actual class of share so you could get the discount card share or the non-discount card share.”

She pointed out this investment choice meant SMSF trustees who subsequently chose to invest in the class of share that included the discount card were suddenly potentially in breach of the sole purpose test.

“In that situation it was going to be an issue, but if [the discount card was included] as one class of share, that would be [considered] an incidental benefit with respect to the sole purpose test and wouldn’t [prevent any] self-managed super fund from investing in Coles Myer from that perspective,” she noted.

“So you do need to have a look at [how a situation like that] flows out.”

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