Breaching the sole purpose test is one of the most serious SMSF trustee transgressions. The ATO have always regarded both the motivation and purpose of an investment as relevant to this consideration. The Full Federal Court decision in the Aussiegolfa case splits the motivation from the purpose and confirms that arrangements that are on arm’s length terms should typically not contravene the sole purpose test. In addition, the word ‘benefit’ in the sole purpose test refers to a financial benefit rather than a general ‘current day benefit’.

The ATO have decided not to contest the decision and have downplayed it by stating that it was dependent on the factual arrangement being considered and should not be regarded as a general principal. It is expected that they will clarify their views in an issues impact statement.

In the interim it would be unwise to base an SMSF investment decision on this case.