The Australian Taxation Office has published a decision impact statement on the high-profile Aussiegolfa case, saying it does not consider that the case is authority for the proposition that a superannuation fund trustee can never contravene the sole purpose test when leasing an asset to a related party because market-value rent is received.
In August, the Full Federal Court ruled that the trustee of a self-managed super fund did not breach the sole purpose test when the fund leased property to the daughter of the fund member. The court dismissed an appeal by the Australian Taxation Office against an earlier ruling.
Aussiegolfa Pty Ltd is the trustee of a self-managed fund known as the Benson Family Superannuation Fund. Christopher Benson is the sole member.
In 2015, Aussiegolfa invested in a managed investment scheme known as the DomaCom Fund. The units it acquired were associated with the acquisition of a property in Burwood, Victoria – the Burwood Sub-Fund.
The units in the sub-fund were held 25 per cent by Aussiegolfa, 50 per cent by Benson’s mother and 25 per cent by a super fund of Benson’s sister and her husband.
The custodian of the DomaCom fund entered into a leasing and management arrangement with Student Housing Australia and in April 2017 Student Housing Australia leased the property to Benson’s daughter.
The sole purpose test requires the trustee to ensure that a fund is maintained for the sole purpose of providing retirement benefits to its members.
Aussiegolfa took a case to court with the support of DomaCom, to test whether the leasing of the property to Benson’s daughter was a breach of the sole purpose test and also whether the units in the DomaCom fund constituted an in-house asset.
When the matter first went to court, the Federal Court held that a self-managed superannuation fund that invested in a property leased to a related party was in breach of the sole purpose and in-house assets tests of the Superannuation Industry (Supervision) Act.
On appeal, the Full Court ruled that the primary judge was correct in finding the units held by the trustee of the fund constituted an investment in a “related trust” of the fund and the primary judge was correct to conclude that the units did not constitute an investment in a widely held unit trust. The Full Federal Court confirmed the breach of the in-house asset rules.
However, the Full Court ruled that the primary judge erred in finding that the leasing of a property at market rent to a related party would cause the self-managed fund to breach the sole purpose test.
It said: “The trial judge ought to have found that DomaCom Fund’s purpose for leasing the Burwood property to Ms Benson did not affect the purpose for which Aussiegolfa maintained its investment in DomaCom Fund or at least that, provided DomaCom ensured that the Burwood property produced an arm’s length return, DomaCom Fund’s purpose was consistent with the Benson Fund satisfying the sole purpose test.”
Since that ruling DomaCom has said it would focus on addressing the related trust (in-house assets) matter and is reviewing its constitution and disclosure documents to address the issue with respect to future sub-funds.
On the issue of the sole purpose test, the ATO says in its decision impact statement that the decision of the court is referrable to the particular facts of the case. Important aspects of the arrangements were that: the property had been leased to two tenants unrelated to the Benson Family Superannuation Fund for two years prior to the premises being leased to the daughter of the member of the BFSF; the daughter paid equivalent market rent to that paid by the two previous tenants; and there was no suggestion that the leasing if the Burwood property to the daughter influenced the BFSF investment policy.
“We do not consider that the case is authority for the proposition that a superannuation fund trustee can never contravene the sole purpose test when leasing an asset to a related party because market-value rent is received.
“It is the purpose of making and maintaining a fund’s investments that is central to identifying if there is a contravention of the sole purpose test. We note the observations of the court that a collateral purpose and a contravention of section 62 of the SIS Act, could well be present if, for example, the circumstances indicated that leasing to a related party had influenced the fund’s investment policy.
“For example, in the Commissioner’s view a superannuation fund trustee will contravene the sole purpose test of the fund acquires residential premises for the collateral purpose of leasing the remises to an associate of the fund, even where the associate pays rent at market value.”