In Paragraph 13 of SMSFR 2008/2, the ATO states that no breach of the sole purpose test will occur where the personal benefit is an inherent or unavoidable part of other activities undertaken by the trustee that are consistent with the provision of benefits specified by subsection 62(1). Paragraph 36 also states that no breach of the sole purpose test will occur where the personal use is incidental and needed for the legitimate maintenance of the investment. Presumably, this would apply in situations where a member of an SMSF on occasions drives a car owned by their SMSF if the personal use is considered incidental and required for the legitimate maintenance of the vehicle.
However, the new regulations specifically prohibit the use of a section 62A item by a related party. Therefore, it seems that, whether or not the personal use of the asset would breach the sole purpose test, the act of a related party using the asset is strictly prohibited under the new regulations. This means SMSF trustees who held a section 62A item in their fund prior to July 1, 2011, which requires regular use in order to maintain the condition and value of the asset (no matter how incidental), will have to make alternative arrangements for that asset prior to July 1, 2016 (unless the entity who uses the asset is not a related party). Presumably the ATO will also clarify this position well before July 1, 2016.
The new rules also require trustees who own a section 62A item (other than a membership of a sporting or social club) to have that item insured. This requirement applies even though the item may already be insured under a group insurance policy maintained by a professional storage company. In practice, the application of this provision is likely to be difficult and expensive for some SMSF trustees who held collectables prior to July 1, 2011, as very few companies worldwide insure collectables. SMSF trustees who face difficulties obtaining insurance for their section 62A items may also need to make alternative arrangements for these items by July 1, 2016.
Peter Burgess is national technical director of the Self-Managed Super Funds Professionals’ Association of Australia (SPAA).
