Speaking at a recent conference in Melbourne, SuperConcepts general manager of technical services and education Peter Burgess said one of the prominent court cases for the SMSF sector in recent months has been the Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation case.
Mr Burgess said this was one of the few times where the ATO has lost a sole purpose test case in the courts.
The court’s decision appeared to deviate from the ATO’s long-held position that a member or a relative cannot receive a personal benefit from the fund, even if the fund receives a market rate of return for the benefit that has been derived, he explained.
“Now 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,” warned Mr Burgess.
“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.”
In this particular case, the personal benefit that was derived from the relative did not happen to almost three years after the trustees had decided to make that investment, he explained.
“So the trustees were clearly able to demonstrate that it did not influence their decision to invest in that particular investment. But would this situation have been different if they knew at the outset that the personal benefit would be derived by the relative – I think it might have.”
The judgement provides much needed clarity on the difference between “purpose” and “motive” – see paras 173-178 of the judgement. It is clear from the judgement that the key test for “purpose” is whether there is an “arms length” commercial arrangement with the tenant at market rates – “Motive” related considerations were viewed as being merely incidental as along as there was no financial benefit. This judgement should be welcomed by the industry as it provides support to the Business Real Property transactions as I think you will find that Business Real Property transactions are not exempted from the Sole Purpose Test – they are only exempted from being inhouse assets. Have a read of the SIS act.
Peter is right here and in any transaction an analysis of the facts is critical for all legal and compliance elements. But we cannot forget the Swiss Chalet case where the Court held that an incidental benefit does not necessarily breach the sole purpose test.
Pity the ATO weren’t the regulator for all super funds, then perhaps the jokers at ISA (Union funds) would take their sole purpose obligations as trustees more seriously. As it is they can get away with anything with ASIC – and apparently the befuddled Hayne royal commission