ATO Interpretative Decision
ATO ID 2002/381 (Withdrawn)
Superannuation
Retirement income entities - Investment and sole purpose: discount card sharesFOI status: may be released
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This ATO ID is withdrawn as it is superseded by SMSFR 2008/2, examples 13 and 14.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Has a Self Managed Superannuation Fund (SMSF) contravened the 'sole purpose test' under section 62 of the Superannuation Industry (Supervision) Act 1993 (SISA) if the trustee acquires discount card shares as an investment, but does not participate in the associated shareholder discount plan?
Decision
No. Trustees of SMSF's may acquire discount card shares providing that the trustees do not participate in the shareholder discount plan as it is currently structured.
Facts
A public company has listed Discount Card shares on the Australian Stock Exchange separately to the company's ordinary shares. From that date (of listing), the purchase of a nominal number of Discount Card shares entitles a shareholder to participate in the Shareholder Discount Plan provided they agree to a debit on their dividend payments each six months.
Participation in the Discount Plan enables shareholders to obtain discounts on purchases from specified stores. Existing shareholders, who held sufficient ordinary shares as at the end of trading prior to the introduction of the discount plan to qualify for the Discount Card, are not subject to the debit of dividends in order to participate in the plan.
Reasons for Decision
Paragraph 62(1)(a) of the SISA requires that the trustee of a regulated superannuation fund ensure that the fund is maintained solely for at least one or more of the 'core purposes'. These include the provision of benefits for members on their retirement, attainment of a certain age, or to their beneficiaries on the death of the member. In addition to one or more of the core purposes, the fund may be maintained for one or more of the 'ancillary purposes', which include benefits on termination of employment or termination of employment because of ill-health.
Under the previous arrangements, where the discount card was made available without further cost to the shareholder, and trustees invested in shares which conferred access to the discount card, such a benefit to a member or members was considered to be incidental to the purchase of the shares. Therefore such investments did not contravene the sole purpose provisions under section 62 of the SISA.
Under the new arrangements the shareholder discount card can no longer be viewed as an incidental benefit to a member or members because the dividend payments resulting from the shareholding are reduced in order to pay for participation in the shareholder discount plan. This is a direct use of the fund's income to pay for a current benefit enjoyed by a member or members and is not consistent with the requirements of section 62 of the SISA.
There is no obstacle to SMSF trustees purchasing Discount Card shares, providing the investment is in accordance with the fund's investment strategy, and the SMSF does not participate in the shareholder discount plan for the reasons mentioned above.
Date of decision: 5 September 2001
Legislative References:
Superannuation Industry (Supervision) Act 1993
Section 62
Paragraph 62(1)(a)
Keywords
Self managed superannuation funds
Sole purpose
SMSF investments
SMSF acquisition of assets
SMSF listed securities
ISSN: 1445-2782
| Date: | Version: | |
| 5 September 2001 | Original statement | |
| You are here | 9 April 2010 | Archived |