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    SMSF decision hinged critically on trusts law

    In brief:    Much has been said about the Aussiegolfa decision (now on appeal to the Full Court), in which the Federal Court determined that an SMSF had breached the sole purpose test and also exceeded the 5% threshold for in-house assets. The relevant investment was in a unit of student accommodation, acquired under the DomaCom Fund, and a daughter of the SMSF’s sole member was one of 3 students who leased the unit. The member is a state manager for DomaCom and it was admitted that the arrangements were intended to test the use of residential property under the DomaCom system for related parties of SMSFs.

    More:    The sole purpose test was breached because a purpose of the SMSF in acquiring units in the DomaCom Fund was to provide accommodation for the sole member’s daughter. But, in relation to the in-house assets breach, it was a critical finding that the sub-fund established for the property acquisition under the DomaCom Fund constituted a separate trust. The members of the sub-fund were wholly entitled to all the income and capital of the sub-fund, to the exclusion of all other members of DomaCom. Further, it was held that the DomaCom responsible entity owed no fiduciary duties to those other members in respect of the sub-fund. So the sub-fund, even though constituted under a single managed investment scheme and governed by the constitution of the scheme, was held to be a separate trust. This decision serves as a good reminder of the versatility of trusts law. Even though we are accustomed in practice to specific types of trusts (e.g. discretionary trust, child maintenance trust, etc), each typically constituted under a single document, these are not precise species recognised in trusts law. Trusts can be created in many ways and there is enormous flexibility in the terms that can be encompassed. This is part of the reason for the special place of trusts in common law countries and their particular attraction to tax practitioners. (Aussiegolfa Pty Ltd v C of T [2017] FCA 1525)

    07 Mar 2018

    Topic: SMSFs/Trusts

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