The Australian Taxation Office (ATO) has recently found that self-managed super fund (SMSF) trustees are being approached to invest in arrangements that breach the sole purpose test and therefore super laws. The ATO has warned that they are “closely scrutinising” this ongoing activity.
Some individuals and organisations are promoting arrangements where funds from SMSF’s are deposited into unit trusts or pooled investments trusts less a management fee. The money is then used to obtain a personal or business related mortgage, which results in the SMSF assets being used to provide member with current-day benefits – this type of loan arrangement should never be entered in to.
Taking part in one of these lending arrangements would breach the sole purpose test as the SMSF is being used for a purpose other than providing retirement benefits for members. The primary reason why trustees are entering into these arrangements is to enable individuals and any associates to use member super savings to provide assistance to members or relatives.
Your SMSF has been created for the sole purpose of saving for your retirement. Entering into any business mortgage lending arrangement should be done with great care. As trustees of the Fund you have a fiduciary and legal responsibility to operate the fund within superannuation laws. Failure to do so can result in criminal and civil penalties. A trustee’s obligation cannot be abdicated to an adviser. For further information regarding trustee obligations, refer to the Tax Office’s trustee declaration.
If you would like any advice on your SMSF loan agreement or trustee obligations please contact Grange Business Partners today – we are here to help!