Super Funds: Maintaining a sole purpose

Posted on September 18th, 2009

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Published by Law Society of New South Wales

Superannuation funds may be looking for more novel ways of accumulating wealth. People may want to accumulate wealth in a super fund by carrying on a business, but the tax office takes the view that this is not acceptable.

An alternative is for the fund to acquire shares in a private company or units in a unit trust which carries on a business. The tax office, however, will most probably say that this does not assist a trustee in avoiding the sole-purpose test.

Trustees of a regulated fund, such as a standard selfmanaged super fund, must maintain the fund for the sole purpose of providing retirement and other accepted benefits to members, such as benefits on the termination of their employment or their ill-health.

Consequences of failing the sole-purpose test are severe. First, the fund will cease to be a complying fund. This means that it might receive a tax bill equal to 45 per cent of the total value of the assets of the fund. Second, a trustee who fails to maintain a fund for a sole purpose might be liable to a fine of up to $220,000 and imprisonment for up to five
years.

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