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Compliance issues with the Sole Purpose Test


How the Fund Trustees invest their funds can be an important part of meeting the Sole Purpose Test. For example if there is no retirement purpose linked to a fund’s investment in a certain asset, this may contravene this test. If the investment benefits another party (i.e. not the SMSF) this will breach the sole purpose test. Providing financial help to a member or associate is a breach. If a fund is deemed to be running a business, this may also be a breach of the sole purpose test.

  



 Sole Purpose Test


It is an essential requirement for a SMSF that it meets the Sole Purpose Test which requires a fund to be maintained to provide Superannuation benefits on the retirement of the member or benefits to dependants on the death of the member.


Failure to comply with this requirement will cause penalties for the fund and it may lose its complying status, making the fund unable to access the tax concessions available to complying funds.


The sole purpose test has two elements – core and ancillary purposes. A SMSF needs to be maintained for either:

  • One or more core purposes
  • One or more core purposes and one or more ancillary purpose


The Core purpose includes the provision of benefits for each member:

  • On or after retirement from gainful employment
  • On or after the member attaining the prescribed age (65)
  • On their death – providing benefits to the members dependants (or legal personal representative)


An ancillary purpose includes the provision of benefits to members on retrenchment, disability, financial hardship and compassionate grounds.

  

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Frequently asked Questions (Q&A)

The Alan Skerritt Consultancy

                   Specialists in Superannuation

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We are an independent family owned business that has specialised in Self Managed Superannuation (SMSF) for more than 30 years..

 


Duties of Trustees


The Superannuation Industry (Supervision) Act 1993 (SISA) imposes a number of trust law duties and obligations on Trustees of a SMSF. These have been codified into covenants and require Trustees to:

  

  • Act honestly in all matters affecting the fund
  • Act in the best interests of the members
  • To exercise the care, skill and diligence of an ordinary prudent person
  • Keep fund assets separate
  • To formulate and give effect to an investment strategy
  • Act within SIS guidelines
  • To manage any Reserves properly
  • Allow a beneficiary access to certain information


In addition to the SISA, Trustees have duties and obligations arising under:

  • General trust law
  • The fund’s Trust Deed
  • Various taxation Acts
  • The Corporation Law


In a broad sense, the Trustees’ Duties can be split into 3 main categories:

  • Acceptance of Contributions
  • Fund Investments
  • Preservation and payment of benefits

  

Welcome

The Alan Skerritt Consultancy

Windsor Holdings Pty Ltd  (ACN 010 018 041 ABN 12 862 040 559)

(Incorporated in Queensland)  Trustee

 info@skerritt.com.au