The Importance of the Sole Purpose Test for Your SMSF

Whether we like it or not, everything revolves around financial stability. Nowadays, thanks to consumerism, there seem to be so many things we simply must have. Unlike in the past, an average household now can’t do without a TV, mobile phones and wi-fi devices as much as it can’t do without a fridge or a toilet. You might have enough when you get your monthly salary, but then you set out on a shopping spree and end up buying more than you first planned. That doesn’t leave much for rainy days, let alone for your old-self when retirement days arrive.

Financial stability

Luckily, Australian ingenuity resulted in creating a most convenient option for investing in one’s own future, the invention of the SMSF. SMSF, short for Self Managed Super Fund, is a fund that outweighs other funds because of the benefits that are provided for its members. You may have heard of the super but don’t exactly know all of the advantages it offers. Its uniqueness comes from the chance to manage it on your own, unlike with other funds. Though, to be on the safe side, it’s always advisable to consult an advisor. This kind of fund can have up to four members that are called trustees, either corporate (a company) or individual, and is meant to be used as a means of acquiring enough funds that can be used once retirement is reached.

To be able to set up an SMSF, it’s important to find a reliable tax agent that can help you with registering your superannuation fund and acquiring the ABN and TFN (Tax File Number). The setting up starts with signing the trust deed and trustee declaration. Since the ATO (Australian Taxation Office) has rules that every member of an SMSF must comply with, which are carried out by a sole purpose test. The sole purpose test superannuation is related to all trustees of an SMSF and it requires that they use the fund only for retirement benefits.

Of course, the fund gives you the opportunity to make investments, however, you must make sure you stick to the purpose. If you breach the sole purpose test superannuation, there are legal consequences that can follow, depending on the breaching itself, such as disqualification as a trustee, and fines you will have to pay – some even up to $10,200. Remember not to use the assets of the investments to your own benefit. This includes all kinds of investments, from real estate and cars, to artwork and jewellery.

The SMSF is your gateway to a safe and sound future, but to be on the safe side, always consult professionals and stick to the rules.