The court in Aussiegolfa v FCT has recently examined the in-house asset rules (s62) and sole purpose test (s71) of the Superannuation Industry Supervision Act 1993 (Cth) (SISA).
In this case, a self managed superannuation fund (SMSF) invested in a managed investment scheme under which the SMSF directed the responsible entity of the scheme to acquire a residential property consisting of student accommodation (Property). One tenant of the Property was the daughter of a member of the SMSF. The SMSF exclusively received the net income and proceeds from the Property.
The court considered whether this scenario constituted an investment in a related trust, and found that the SMSF had invested in a related sub-trust of the scheme (rather than in the scheme as a whole) in breach of the in-house asset rules. The reasons provided by the court were that:
- the SMSF was entitled to 100% of the income and proceeds of the Property;
- the responsible entity of the scheme owed no other fiduciary duties to the other beneficiaries of the scheme in relation to the Property; and
- the responsible entity’s right of indemnity in relation to the Property was confined to the assets in the sub-trust.
The court also considered these facts in the context of the sole purpose test, which requires a SMSF to be maintained for the purpose of providing benefits to members upon their retirement. The court confirmed that this is a high standard to meet and the collateral purpose here of providing housing for a relative to obtain a present benefit was inconsistent with this test.