The sole purpose test sets the primary and ancillary purposes for which a SMSF is to be operated, i.e. to provide benefits to members upon their retirement, reaching of retirement age or death. A breach of the test may cause the SMSF to lose its status as a complying fund and can incur fines of up to $220,000 or 5 years imprisonment for the trustees.

Consequently, all investment decisions should be made in accordance with the fund’s investment strategy and should be based solely on increasing the return to the fund. Common breaches of the sole purpose test include:

1. seeking out an investment that offers  a pre-retirement benefit to a member or associate; or
2. entering into an arrangement to provide financial assistance or a pre-retirement benefit to a person or entity at a financial detriment to the fund.

If you are uncertain about whether your SMSF is complying with the SIS Act, you should seek advice as soon as possible.

After seeking appropriate financial advice, the team at Ferguson Cannon Lawyers can assist you in complying with the legal requirements of the Sole Purpose Test.

Please contact Byron Cannon or Sam Barber on (07) 5443 6600 or by email to discuss all your SMSF needs:

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