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You are here: Home / SMSF Property Investment / The Sole Purpose Test – What it is and how to stay compliant

8 years ago, we saw the need in a growing market for lending experts who specialise in SMSF. Our team now combines years of experience through every aspect of self-managed super funds. Together, we organise more limited recourse borrowing arrangements (LRBA or SMSF loans) in a week than most other brokers or bank branches in a year. Here we share some of our insights as well as SMSF news with you.

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The Sole Purpose Test

The Sole Purpose Test – What it is and how to stay compliant

November 3, 2016 By Yannick Ieko

If you’re reading this article, then chances are you’re thinking about using a Self-managed Super Fund for property investment – if that’s you, it’s important to take a moment to consider ATO’s sole purpose test.

To put it simply, the sole purpose test determines whether your SMSF is being managed solely for the purpose of providing Superannuation benefits to you and any other members of your SMSF at retirement.

A simple rule of thumb to indicate whether you’re likely to meet the purpose test is that if you’re related to the fund, you cannot use it’s assets.

Effective SMSF Investment

Here’s an example of The Sole Purpose Test

Let’s say you were thinking about using a SMSF to buy a holiday apartment on the coast – the idea being that you could use it yourself a couple of weeks of the year, and let for the remainder. In this instance you’d be getting a benefit – and that could mean failing the sole purpose test and your fund becoming uncompliant.

In fact, the consequences for this could be very severe, including disqualification from being a SMSF trustee in the future. The financial gains you can make with effective SMSF investment simply aren’t worth risk!

Interestingly, the sole purpose test applies to any SMSF investment, not just property. If you’re unsure whether what you’re doing now – or have in mind for your SMSF will meet the sole purpose test, contact SMSF Loan Experts today.

Filed Under: SMSF Property Investment

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    • Call 1300 781 680
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