Sole Purpose Test: The Most Important SMSF Rule
Though sadly we don’t have the crystal ball that would help us predict our future, we have our minds and the ability to handle problem solving to get us through, along with being part of a world that’s based on a vast number of choices, and by choices I also refer to financial ones. Investing in one’s future is no easy business, that much we know. However, there are certain options that can simplify our investment decisions, and assist us in saving up for rainy days after retirement. Of course, by now, you might as well guess I’m referring to the superannuation funds, SMSF in particular.
Apart from the importance of getting to know how to set up an SMSF, you have to be in the know on rules and regulations by the ATO (Australian Taxation Office) simply because there are fines for every financial indiscipline, and one rule you should pay great attention to is the sole purpose test Smsf trustees have to abide by. So, what’s a sole purpose test? It’s the test that was created so as to ensure trustees undertake every action and investment through the fund with the purpose of getting retirement or death benefits (to the beneficiaries of the fund).
Given that as of this year and the next, there are to be harsher fines for trustees who breach the sole purpose test SMSF has at its base, with up to $12.600 per trustee (yes, even corporate ones), it’s more than the proof this sort of financing shouldn’t be taken lightly. Yes, this fund in particular gives you the freedom to manage it on your own, as indicated in its name, but that doesn’t mean you always know all the ins and outs of rules and regulations as good as professionals do so don’t hesitate to seek their reliable advice.
What happens when you breach this most important superannuation rule is along with ending up paying a large sum of penalties, the fund would also no longer be taxed at the concessional rate of 15% – instead at much higher rates. As long as your views on running the SMSF are objective, for the purpose of providing retirement benefits, and not subjective working to your own benefit now directly or indirectly (obtaining financial benefits, making use of the SMSF assets prior to retirement), you can be sure of successful superannuation management.
It’s always better to resort to the help of professionals than to manage the fund on your own without having all the knowledge. This way you avoid breaching any of the rules and penalties.