ATO Interpretative Decision
ATO ID 2004/249
Superannuation
Investment in art by a Self Managed Superannuation Fund (SMSF) and its displayFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does an SMSF breach the sole purpose test when a work of art, which is owned by the SMSF, is displayed in a residence belonging to a member at no cost to the member?
Decision
Yes, an SMSF will generally breach the sole purpose test when a work of art is displayed in a residence belonging to a member at no cost to the member.
Facts
An SMSF invests in works of art.
Some of the works of art are housed in the residence of the members of the fund.
The member does not pay the fund for the use of its asset.
Reasons for Decision
Australian Prudential Regulation Authority (APRA) Superannuation Circular No.III.A.4 discusses the sole purpose test. The circular states the following at paragraph 6:
The sole purpose test provides that a regulated superannuation fund must be maintained solely for at least one of the legislated
core purposes
or for at least one of those core purposes and for one or more of the prescribed or approved
ancillary purposes
.
Some guidance of the approach to be taken regarding the sole purpose test can be found in Case 43/95 95 ATC 374; AAT Case 10,301 31 ATR 1067. In the joint decision of the Tribunal the following statement was made:
In addition to the above, it may be that there are isolated incidents which, viewed in the overall context of the way in which the fund is being maintained, are so incidental, remote or insignificant, that they cannot, having regard to the objects sought to be achieved by the Act, be regarded as constituting a breach of the sole purpose test. Such incidents will be rare. The legislature, by adopting the "sole purpose" test, has expressly determined that a strict standard of compliance should be adhered to. Under the Act, the test requires more than the presence of a dominant or principal purpose in the maintenance of a superannuation fund - it requires an exclusivity of purpose commensurate with that purpose being the "sole purpose".
The question of whether the sole purpose test has been contravened needs to be determined on the facts of each case. As can be seen from Case 43/95 the standard is very high. Generally where a fund acquires an asset which is utilised by the member at no cost, a breach of the sole purpose will be considered to have occurred.
Date of decision: 27 October 2003Year of income: Year ended 30 June 2003
Legislative References:
Superannuation Industry (Supervision) Act 1993
section 62
Case References:
Case 43/95
95 ATC 374
31 ATR 1067 Related ATO Interpretative Decisions
ATO ID 2002/381
ATO ID 2004/248
ATO ID 2004/250
ATO ID 2004/251
Other References:
APRA Superannuation Circular No.III.A.4
Keywords
Self managed superannuation funds
Sole purpose
SMSF investments
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 27 October 2003 | Original statement |
| 18 July 2008 | Archived |