An ATO spokesperson has today confirmed that the Commissioner will not be seeking special leave to appeal the Full Federal Court decision in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2018] FCAFC 122 in respect of the sole purpose test.
The Full Federal Court of Australia handed down its judgement on the case in August, and concluded that the leasing of a residential property held by a sub-fund, of which the SMSF was invested, to the daughter of the SMSF member, was not a breach of the sole purpose test.
This was an appeal to an earlier judgement by the Federal Court, which upheld the commissioner’s determination that the fund had breached the sole purpose test.
The ATO said it is aware that there has been some media commentary that the decision by the Full Federal Court changes the application of the sole purpose test to SMSF dealings with related parties.
“However, the Full Federal Court emphasised that its decision with respect to sole purpose test was dependent on the factual arrangement being considered, and a different set of circumstances may have led to a different outcome,” the ATO stated.
“We are currently considering whether our views on sole purpose test in Self-Managed Superannuation Funds Ruling SMSFR 2008/2 should be clarified in light of the Court’s observations.”
The ATO also noted that the arrangement was still found to be in contravention of the in-house asset test and therefore ineffective from a regulatory perspective.
The ATO confirmed that it will provide its views on both aspects of the decision when it issues a Decision Impact Statement.
SMSF technical experts have flagged concerns recently that the court decision may entice some SMSF trustees to push the boundaries with the sole purpose test.
“It would be wrong to go out and think there’s now a change in the law and that it’s okay for the member to start receiving a personal benefit from the assets of the fund,” Mr Burgess cautioned at a recent conference.
“What we don’t know in this case is whether the outcome would have been different if the trustees, when they decided to invest, were aware of the personal benefit that the member may get.”
Clearly this could be open to rorting. In retirement phase we could all buy houses for our kids in our SMSF, get the rent, pay our pension out of the fund and reimburse the kids!
You have to look to the past to understand the current super legislation. Under OSSA, the most appalling abuses of the tax concessions afforded to super were apparent. SISA was the first meaningful super legislation, but that was 25 years ago, and there is now doubt, it needs a makeover. Until that happens, it is what it is.
The ATO uses it’s position as Tax Regulator to continue to assist with tax law implications for super and infact, these are where the most significant changes have come from in the past 25 years.
SISA is sound, but needs reviewing to bring it into modern times.
(I don’t know why people struggle to understand the sole purpose test, except that they are trying to enlarge the envelope.)
We have yet to see a high court decision on the meaning of the sole purpose test – a crucial test for the $2.3 Trillion superannuation industry. It is a shame the ATO is not taking this on as a test case to get the final word from the highest court in the land. We all await the decision impact statement but at least we have some very strong judicial guidance to rely on.
I am still struggling to understand what benefits the members received. The property was managed and a full market rent was received. The return on the investment was in excess of alternatives. The sole purpose test requires that the fund is set up to provide retirement benefits. This fund has had an exceptional income from its investment thereby increasing its value and providing more benefits that would otherwise have been the case. How is that not meeting the sole purpose test? The daughter paid full market rent. What benefit did she receive?