Compliance issues with the Sole Purpose Test
How the Fund Trustees invest their funds can be an important part of meeting the Sole Purpose Test. For example if there is no retirement purpose linked to a fund’s investment in a certain asset, this may contravene this test. If the investment benefits another party (i.e. not the SMSF) this will breach the sole purpose test. Providing financial help to a member or associate is a breach. If a fund is deemed to be running a business, this may also be a breach of the sole purpose test.
Sole Purpose Test
It is an essential requirement for a SMSF that it meets the Sole Purpose Test which requires a fund to be maintained to provide Superannuation benefits on the retirement of the member or benefits to dependants on the death of the member.
Failure to comply with this requirement will cause penalties for the fund and it may lose its complying status, making the fund unable to access the tax concessions available to complying funds.
The sole purpose test has two elements – core and ancillary purposes. A SMSF needs to be maintained for either:
- One or more core purposes
- One or more core purposes and one or more ancillary purpose
The Core purpose includes the provision of benefits for each member:
- On or after retirement from gainful employment
- On or after the member attaining the prescribed age (65)
- On their death – providing benefits to the members dependants (or legal personal representative)
An ancillary purpose includes the provision of benefits to members on retrenchment, disability, financial hardship and compassionate grounds.
We are an independent family owned business that has specialised in Self Managed Superannuation (SMSF) for more than 30 years..
Duties of Trustees
The Superannuation Industry (Supervision) Act 1993 (SISA) imposes a number of trust law duties and obligations on Trustees of a SMSF. These have been codified into covenants and require Trustees to:
- Act honestly in all matters affecting the fund
- Act in the best interests of the members
- To exercise the care, skill and diligence of an ordinary prudent person
- Keep fund assets separate
- To formulate and give effect to an investment strategy
- Act within SIS guidelines
- To manage any Reserves properly
- Allow a beneficiary access to certain information
In addition to the SISA, Trustees have duties and obligations arising under:
- General trust law
- The fund’s Trust Deed
- Various taxation Acts
- The Corporation Law
In a broad sense, the Trustees’ Duties can be split into 3 main categories:
- Acceptance of Contributions
- Fund Investments
- Preservation and payment of benefits
The Alan Skerritt Consultancy
Windsor Holdings Pty Ltd (ACN 010 018 041 ABN 12 862 040 559)
(Incorporated in Queensland) Trustee
What is a Self Managed Super Fund (SMSF)?
Can a SMSF have just one Member?
How much Superannuation do you need to set up a SMSF?
What contributions can be accepted by my SMSF?
Contribution Limits - concessional and non concessional contributions
Can my SMSF pay a pension when I retire?
Transition to Retirement Income Streams (TRIS's)
What tax will I pay on my pension?
Compliance issues with the Sole Purpose Test
Buying a property within your SMSF
Nothing in this website should be considered personal advice. The information is of a general nature and does not consider your personal needs and objectives or your financial situation.
