A full Federal Court bench has dismissed a previous ruling that leasing a residential property held by a DomaCom sub-fund to an SMSF member’s child was a breach of the sole purpose test.
Last week, the Federal Court of Australia handed down its judgement for Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation, which related to an investment by Aussiegolfa Pty Ltd in its capacity as the trustee of Benson Family Superannuation Fund.
The SMSF invested in a managed investment scheme run by DomaCom, and in return for its investment, the fund received units in a sub trust that was used to buy an apartment intended to be leased as student accommodation.
One of the property’s tenants was also the daughter of one of the members of the Benson family SMSF, with the ATO commissioner then claiming the fund’s trustee breached the sole purpose test in making an investment for the collateral purpose of providing accommodation to the daughter of the members of the fund.
In an earlier Federal Court case on the matter, Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation , Justice Tony Pagone upheld the commissioner’s determination that the fund had breached the in-house asset rules and the sole purpose test.
In the judgement to the appeal, Justices Anthony Besanko, Mark Moshinsky, and Simon Steward concluded that Justice Pagone was correct to conclude that the units held by Aussiegolfa in the DomaCom Fund or the Burwood sub-fund constituted an investment in a related trust of the Benson Fund.
They also concluded that the primary judge was correct to conclude that the units did not constitute an investment in a widely held unit trust, but added that the primary judge erred in concluding that the leasing of the Burwood Property to Mr Benson’s daughter would cause Aussiegolfa to breach the sole purpose test.
In the judgement, Justice Moshinsky stated that he did not agree with the primary judge that the purpose of Aussiegolfa in acquiring the units in the DomaCom Fund was to provide accommodation to a relative of Mr Benson.
The judgement noted that in 2015 the Benson family had made a decision to invest in student accommodation and other “relatively low-cost, relatively high-return” opportunities through a DomaCom sub-fund.
DomaCom chief executive Arthur Naoumidis said DomaCom is very pleased to have the court confirm that it was not a breach of the sole purpose test when a related party of the Benson Family Superannuation Fund rented a property held by the DomaCom Burwood sub-fund.
“We believe that this finding, on its own, represents a milestone for the SMSF industry,” he said.
“In relation to the related trust determination, we are reviewing the comprehensive judgment with our lawyers and will make a further announcement about the effect, if any, of the decision on the DomaCom Fund.”
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