Sole Purpose Test

The Sole Purpose Test is designed to ensure that each investment made or action undertaken by the SMSF is for the sole purpose of providing retirement benefits or death benefits to the Beneficiaries of the SMSF.

It is important that the sole purpose test is adhered to at all times. If Trustees use the SMSF for any other purpose, e.g. to access funds before retirement or run a business in the SMSF, the Fund may forfeit its compliance status. This means the Fund will no longer be taxed at the concessional rate of 15% but at a much higher rate, with added penalties. So stay within the Superannuation rules!

In its capacity as regulator of SMSFs, the ATO does not take a big stick approach to applying these rules and regulations. As long as the Trustees have a genuine interest in the retirement benefit of the Fund at heart, there won’t be any penalties.

Trustees must maintain an SMSF in a manner that complies at all times with the sole purpose test. This is the most important rule of Superannuation.

SMSF as the legal owner

It is good practice for Trustees to ensure all investments are under the name of the SMSF and any expenses in the operation of the Fund are supported by an invoice or receipt addressed to the Super Fund. This will add audit evidence the expense is incurred for the sole purpose of providing retirement benefits. Paying expenses from the SMSF bank account will also make the accounting and auditing process of the Fund easier when preparing the annual tax return for the SMSF. For more information on the naming convention of assets in an SMSF, please click on the button below:

For more information on the process we follow to complete the annual return and what information we expect from Trustees, please click on the button below:

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