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The Sole Purpose Test

Individual trustees and directors of self-managed super funds (SMSF) take on a number of significant responsibilities and obligations when running their fund.
Adhering to the sole purpose test is one of the most fundamental superannuation rules all trustees must follow to avoid facing serious penalties and to ensure their SMSF remains eligible for the tax concessions normally available to super funds.

The sole purpose test requires superannuation funds to be maintained for the sole and single purpose of providing its members with retirement benefits or, in the circumstances of the death of a member, provide benefits to beneficiaries, such as a dependant spouse or child.

An individual’s SMSF will not meet the sole purpose test if the individual or anyone else, directly or indirectly, obtains a financial benefit when making investment decisions and arrangements (other than increasing the return to the fund).

Contraventions of the sole purpose test may arise where the fund provides a pre-retirement benefit to someone, for example, personal use of a fund asset.
In addition, collectables, such as art and wine, must not be used or accessed by SMSF members.

Failure to comply with the sole purpose test can also result in funds losing their concessional tax treatment and the disqualification of trustees.

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