October 2007
Superannuation: sole purpose test
Draft Self Managed Superannuation Funds Ruling SMSFR 2007/D1, issued on 5 September 2007, sets out the Commissioner’s preliminary view of the application of the ‘sole purpose test’ in the Superannuation Industry (Supervision) Act 1993, in relation to the provision of benefits other than retirement, employment termination or death benefits, such as what are described as pre-retirement benefits.
By way of background, the sole purpose test reflects the underlying purpose for the existence of a superannuation fund, namely to provide benefits to members on retirement, or to their dependents when they die. The test requires that the trustee maintain the fund so benefits are solely provided for purposes contained in the Superannuation Industry (Supervision) Act 1993. These purposes are divided into core and ancillary purposes.
According to the draft ruling, at a minimum, one or more of the core purposes must be maintained throughout the life of a self managed superannuation fund (SMSF). These core purposes are:
- the provision of benefits on or after retirement from gainful employment
- the provision of benefits on or after attainment of the prescribed age specified in legislation, and
- the provision of benefits on or after a member’s death before their retirement or attainment of the prescribed age, to the member’s legal personal representative or to the member’s dependents.
According to the draft ruling, the provision of benefits for ancillary proposes may also be provided in addition to the core purpose. The ancillary purposes are:
- the provision of benefits on or after termination
- the provision of benefits on or after cessation of gainful employment where the cessation is on account of ill-health, and
- the provision of benefits on or after a member’s death after their retirement or attainment of the prescribed age, to the member’s legal personal representative or to the member’s dependents.
Where the trustee of a SMSF provides benefits other than those specified, the sole purpose test is breached. Non-compliance with the test may result in civil and criminal penalties and the fund losing its complying fund status.
The draft ruling notes that the provision of benefits outside the scope of those prescribed may occur as an inherent or unavoidable part of the legitimate activities of the SMSF. The draft ruling goes on to state that where these benefits are incidental, remote or insignificant in the overall context of the SMSF, the provision does not displace an assessment that the SMSF is being maintained solely for the prescribed purposes, and the trustee does not contravene the sole purpose test.
The Commissioner’s preliminary view proposes indicating factors relevant in determining whether the provision of benefits not specified in the legislation, are in contravention of the sole purpose test. These factors are set out in the draft ruling. The draft ruling also considers a number of examples, some of which contravene the sole purpose test.
Victoria: Payroll tax revenue rulings
The Victorian State Revenue Office has released the following Payroll Tax Revenue Rulings relating to the new Payroll Tax Act 2007:
- PTA010 Wage subsidies
- PTA011 Allowances and reimbursements
- PTA012 Exemption for maternity and adoption leave pay
- PTA013 Fees paid to golf professionals by golf clubs, and
- PTA014 Contractors – What constitutes a day’s work?’
For further information, please complete the following form, or contact:
Rohan Geddes, Partner
PricewaterhouseCoopers Tax
International Assignment Solutions
Phone: +61 3 8603 3844
Jim Lijeski, Partner
PricewaterhouseCoopers Tax
International Assignment Solutions
Phone: +61 2 8266 8298
Tony Halcrow, Director
PricewaterhouseCoopers Tax
International Assignment Solutions
Phone: +61 2 8266 7279
