Coleman Greig principal lawyer Peter Bobbin said he is still coming across examples of professional advice where the advice provided has been to purchase the property in the holiday destination that the client wants to retire in.
“[The advice has been] buy the property in your super fund, rent it out, short-term, long-term leasing, doesn’t matter. You want to go live by the beach in another five or 10 years’ time, use your super fund to buy it, possibly even with a limited recourse borrowing arrangement, and when you’ve obtained the relevant conditions of release and it’s time to retire, acquire the property from the superannuation fund, you’ve now got the place you want to live in,” Mr Bobbin explained in a Colonial First State podcast.
While from a transactional point of view, Mr Bobbin said this may be acceptable, expressing the advice in this way is a clear breach of the sole purpose test.
Even where the client was intending to pay the property to themselves as an in-specie benefit, it would still be a breach, he stated.
“It’s still a breach, because it’s not about the provision of retirement benefits; it’s about acquiring the property that they want to go and live in,” he explained.
“If you look at each transaction in isolation, it’s not a problem, but it was contained in a piece of advice that evidenced that the intention of the particular SMSF’s members was to acquire a property in superannuation which was in the area that they wanted to live in.”
If, on the other hand, the advice had stated that the SMSF clients were acquiring the property in that area because “they’ve done a lot of research in that area because it’s an area that they know because it’s an area they are considering potentially retiring in, and because of all the research they’ve done they’ve found this particular property in their opinion to be a good property to buy for that retirement purpose”, then it may be acceptable, Mr Bobbin said.
“[The problem is] that it was expressed that this is the way in which you can buy your future retirement home,” he said.
It is vital, he said, that when providing advice on these sorts of circumstances, that SMSF professionals consider the outcomes and objectives of what the client is trying to achieve and whether that relates to the purpose of providing retirement benefits, particularly in the way the advice is expressed. Otherwise, it could expose the client to significant breaches.
“If you’re the professional involved in developing that, then unfortunately, there could be quite a significant negligence claim that may be brought. That’s quite ugly particularly where it’s the client who wanted to achieve the particular objective,” he warned.
