ATO reveals appeal decision for Aussiegolfa case

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.”