A fundamental requirement is that superannuation funds meet a sole purpose test – the provision of retirement benefits.  If it appears that there is a different purpose, the fund can become non-complying.

The auditor, the tax office and the court, will look at all the circumstances to form an opinion.  If that happens, the trustee will have difficulty proving them wrong.  (That is called burden of proof).

Is it likely that a purchase of a residential property and leasing it to a child, who doesn’t pay rent or pays less than market rent, would be to the benefit of the members?

Do you think the purchase of a caravan or a motor vehicle or some hobby farm expenses, is for the benefit of members at their retirement?

It is highly likely that the answer to those questions is no and therefore the fund is not being provided for the sole purpose of providing retirement benefits.

That means that the fund becomes non-complying.  It could also mean that the trustees are liable to pay penalties personally and quite substantial ones.

It is not easy always to determine whether something is for the sole purpose of retirement benefits, but one example recently was decided on the basis that the provision of rental income was on non arms length terms to the member's son.

Source:  Written for AcctWeb by a Melbourne accounting firm