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Landmark case tipped to drive more scrutiny of trusts

A significant test case for self-managed super funds is likely to see the regulators monitor the use of certain trust structures, according to some tax experts. 

The ATO confirmed this week that it would not be seeking special leave to appeal the Federal Court full bench decision in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2018] FCAFC 122. 

The Aussiegolfa case involved an SMSF that invested in a managed investment scheme run by fractional investing business DomaCom. In return for the investment, the fund received units in a sub trust. The funds in the sub trust were used to buy an apartment that was leased to the daughter of the SMSF members.

A full bench of the Federal Court of Australia concluded that this was not a breach of the sole purpose test, rejecting an earlier judgement by the Federal Court. The sole purpose prescribes that superannuation is used solely for retirement income benefits, as opposed to current-day benefits. 

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Speaking on the Aussiegolfa case, SuperConcepts general manager of technical services and education Peter Burgess said he suspects the ATO will be watching out for SMSFs that are entering into lease arrangements with related parties on commercial terms, and using complex trust structures to do so. 

“If the trust is a widely held trust than that’s fine because there are specific carve outs in the in-house asset rules which apply to these types of trusts,” he explained.

“[However], it may also be possible to put in place smaller trust structures which, at least on the face of it, wouldn’t breach the in-house asset rules if a residential property owned by the trust was leased to a related party of the SMSF.

“For example, if the SMSF invests in the unit trust with one or more unrelated entities and the SMSF doesn’t control the trust, then a residential property leased to a related party of the SMSF on commercial terms wouldn’t, on the face of it, breach the in-house asset rules because the trust is not a related trust."

Landmark case tipped to drive more scrutiny of trusts
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