The recent case of Aussiegolfa v FCT is an important decision for considering two aspects of the superannuation laws that are not often considered by the Courts, the in-house asset rules and the sole purpose test. This snippet looks at the former, another snippet looks at the latter.
Here, the relevant self managed superannuation fund (SMSF) invested in a managed investment scheme under which the SMSF directed the responsible entity of the scheme to acquire a residential property. The net income and proceeds of the residential property would be held for that SMSF to the exclusion of the other investors in that scheme. An additional issue here, for the SMSF in question, was that the residential property was leased to the daughter of the member of the SMSF.
For the purpose of in-house asset rules, the question arose as to whether the SMSF’s investment in the managed investment scheme was an investment in a related trust. The key to answering that question was whether the SMSF’s investment was in the scheme as a whole (which would not be a related trust) or an investment in a sub-trust of the scheme (which would be a related trust). The Commissioner of Taxation also hedged his bets here by using his power (under section 71(4) of the Superannuation Industry Supervision Act 1993) to deem the investment in the scheme to be an in-house asset.
The Court found that the SMSF had invested in a sub-trust and that, therefore, there was a breach of the in-house asset rules. Reasons for finding a sub-trust existed included that the SMSFs were entitled to 100% of the income and proceeds of the residential property, the responsible entity owed no other fiduciaries duties to the other beneficiaries of the managed investment scheme in relation to the residential property and responsible entity’s rights of indemnity in relation to the residential property were limited to the assets in the sub-trust.
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