Draft ATO Self Managed Superannuation Funds Rulings

The ATO has issued 2 draft rulings relating to Self Managed Superannuation Funds (SMSF's).

SMSFR 2007/D1 discusses the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 (SISA) which prohibits trustees from maintaining an SMSF for purposes other than for the provision of benefits specified by subsection 62(1). The draft ruling clarifies when the provision of such other benefits will not contravene the sole purpose test in section 62 of the SISA.

The example given of when section 62 is breached is:

"The trustee of an SMSF invests in a block of holiday apartments at a popular tourist destination. The members of the SMSF holiday in this area every year and prior to making the investment owned a separate holiday house nearby .

The trustee, when undertaking the investment, additionally negotiated for members of the SMSF to be able to stay at the apartments for free. This is not a standard feature of the investment. The members of the SMSF sell their holiday house immediately after the SMSF makes the holiday apartment investment.

The separate negotiation of the benefit, which also has the potential to materially affect the return on the SMSF's investment, demonstrates that the benefit is purposeful and not incidental. The facts given in this example reveal that the SMSF is being maintained for a purpose of providing benefits to members other than those specified by section 62. Therefore, the trustee contravenes the sole purpose test in these circumstances ."

SMSFR 2007/D2 discusses the circumstances when a trustee or investment manager of an SMSF contravenes paragraph 65(1)(b) of the Act by using the resources of the SMSF to give financial assistance (other than lending money of the SMSF) to a member of the SMSF or relative of a member of the SMSF.