Sole purpose test – What Does This Mean?
Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds.
This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.
The ATO looks at contravention of the sole purpose test as very serious. In addition to the fund losing its concessional tax treatment, trustees could face civil and criminal penalties.
It’s likely your fund will not meet the sole purpose test if you or anyone else, directly or indirectly, obtains a financial benefit when making investment decisions and arrangements (other than increasing the return to your fund).
When investing in collectables such as art or wine, you need to make sure that SMSF members don’t have use of, or access to, the assets of the SMSF. This is one of the most common contraventions of the sole purpose test.
Your fund fails the sole purpose test if it provides a pre-retirement benefit to someone – for example, personal use of a fund asset, like a beach/rental property or withdrawal of cash from the SMSF without satisfying the appropriate rules.
If you would like hands on advice, book an appointment with us, Financially Sorted today.
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