Sole purpose test

Superannuation funds must meet the ‘sole purpose test'(s62 SIS Act) to be eligible for the tax concessions available to a complying superannuation fund. This means a superannuation fund needs to be maintained for the sole purpose of providing retirement benefits to its members, or to their dependants if a member dies before retirement. A superannuation fund trustees needs to ensure that the superannuation fund complies with the ‘sole purpose test’ at all times, including when investing fund assets and paying benefits.

The ‘sole purpose test’ is divided into ‘core purposes’ (s62(1)(a) SIS Act) and ‘ancillary purposes’ (s62(1)(b) SIS Act). A superannuation fund needs to be maintained solely for either of the following:

• one or more core purposes, or
• at least one core purpose and one or more ancillary purposes.

Contravening the sole purpose test can result in the trustees facing civil and criminal penalties.

The operation of the ‘sole purpose test’ has been considered in SMSFR 2008/2.

‘Core purposes’
Generally, ‘core purposes’ are the provision of benefits:

• for each member on or after retirement
• for each member on or after their reaching age 65
• in respect of each member on or after their death if they died before turning age 65

‘Ancillary purposes’
Generally, ‘ancillary purposes’ are the provision of benefits

• for each member on or after the termination of the member’s employment with an employer who had contributed to the fund in relation to the member
• for each member where they have ceased employment due to physical or mental ill health
• in respect of each member on or after their death if they died after turning age 65. or
• for or in respect of each member which the cashing restrictions in the SIS Reg permit or require to be paid. These include the payment of benefits on the grounds of terminal illness, severe financial hardship or compassionate grounds, subject to the governing rules of the fund. note, the administration of the ‘Early release of benefits on specified compassionate grounds’ program is the responsibility of the Chief Executive Medicare (previously APRA)