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The Significance of the Sole Purpose Test

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The other day an accountant asked me about this, specifically he asked “just how important is it”.

I referred him to paragraphs 300 - 311 of the Guidance Statement 009 on “Auditing Self-Managed Superannuation Funds”.  This mentions the legislation and confirms that the SMSF must be maintained solely for one or more of the allowable core purposes, relating to the provision of benefits on retirement and related purposes.

During an audit, the question most often occurs, were SMSF assets acquired with the intention of providing benefits for members on their retirement, or for some other reason?  It is important assets are not seen as benefiting members now, that is, retirement homes, antique motor vehicles, apartments for children, etc.

Despite some allowance for “incidental, remote or insignificant” benefits, it is a minefield, care must be taken.  

Preferably talk with your SMSF auditor prior to the acquisition of unusual assets.  Unfortunately so often the accountant and auditor finds out post event.  If you consider a fund may have breached the sole purpose test, call now, not after balance date.  

Educate your clients about this.  Do you have funds where the sole purpose test is not properly understood by the trustees?  If so contact us and we can provide some explanatory information.