We previously reported on the Federal Court decision of Aussiegolfa v FTC here and here. The Full Federal Court has now handed down its appeal decision. This case is important because it considers two key planks of the superannuation prudential standards, the in-house asset rules and the sole purpose test. This snippet looks at the former, another snippet looks at the latter.

The in-house asset rules generally limit a self managed superannuation fund’s (SMSF) investment in a related trust to 5% of the SMSF’s assets. The question here was whether the investment by the SMSF in a managed investment scheme’s “sub-fund” was an investment in the managed investment scheme as a whole (which would not be a related trust) or an investment in the sub-fund as a separate sub-trust which would be an investment in a related trust (and in breach of the in-house asset rules).

After examining the constitution of the managed investment scheme and its product disclosure statement, the Full Federal Court found that the sub-fund was a separate trust and in-house asset.

It’s important to remember that the in-house asset rules (unlike the sole purpose test) do not require an ulterior purpose. The investment in the trust either breaches the in-house asset rules or it doesn’t; the purpose of the investment is irrelevant.

What does this finding mean for SMSFs? Probably not a lot in the scheme of things. Primarily it means that SMSFs generally cannot invest in sub-trusts of managed investment schemes. The case’s application to investments in other private trusts, such as unit trusts, is more limited as they are unlikely to use sub-trusts. Therefore, in relation to those private unit trusts, the application of the in-house asset rules are more straight forward.

To discuss this further or for more information please contact:

Phil Broderick
Principal
Sladen Legal
T +61 3 9611 0163 l M +61 419 512 801
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: pbroderick@sladen.com.au

Ashleigh Eynaud
Associate
Sladen Legal
T +61 3 9611 0129
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia
E: aeynaud@sladen.com.au