This commentary is written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard. The title is Different purpose

It was first published on Tuesday 3 May 2011

And is read by Michael Mullins

Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.

We rarely hear of court findings involving relatively straightforward breaches of superannuation’s sole purpose test.

This is despite the fact that the ATO, as regulator of self-managed super, really drives home to SMSF trustees that their funds must be maintained for the sole purpose of providing retirement benefits to members.

A small minority of SMSF trustees would breach the sole purpose test each year. However, the tax office has found that trustees who are suspected of breaching the sole purpose test usually can be pursued for other easier-to-prove contraventions of superannuation law such as providing financial benefits to members.

Discussion about the legal application of the sole purpose test is usually in regard to more exotic fund-owned assets such as overseas holiday homes and artwork.

Interestingly, the Superannuation & Financial Services Bulletin, published by Thomson Reuters, reports that the Federal Court has imposed a civil penalty on a SMSF trustee for illegal early access of super in breach of the sole purpose test.

The SMSF had been established with superannuation rolled over from another fund. Subsequently, 41 illegal withdrawals were made from the fund, totalling $64,000 over three years.

Money was withdrawn from the fund to settle threatened legal proceedings against the trustee by a former client of a stockbroking firm where he worked, and to meet financial needs involving the breakdown of his marriage and his son’s private school.

Thomson Reuters reports that the trustee had breached the sole purpose test in regard to at least 30 of the withdrawals from the fund. The court was also satisfied that the trustee had breached the provision barring the use of fund assets to provide financial assistance to members.

And that concludes the column

Different purpose

from Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia

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Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.