DomaCom win Federal Court battle in SMSF breakthrough

The Full Federal Court has handed down judgment in the appeal by Aussiegolfa Pty Ltd (in its capacity as trustee of the Benson Family Superannuation Fund (BFSF) which clarifies SMSF rules regarding the sole purpose test. 

The Court held that the primary judge was incorrect in concluding that the leasing of a property held by the sub-fund to a child of a member of the BFSF was a breach of the ‘sole purpose test’. 

It related to a $104,000 student residential property in Melbourne's Burwood.

DomaCom had entered into a leasing and managing authority with Student Housing Australia for the leasing of the Burwood Highway property. The first two longterm tenants of the studio apartment were persons unknown, and unrelated, to the Benson family, but then Student Housing Australia agreed to lease an apartment to a daughter of the Benson family with the lease at the same $869 monthly rental as had been paid by the first two tenants. 

The DomaCom chief Arthur Naoumidis has welcomed the decision.

"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 BFSF 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.” 

DomaCom supported the action against the Commissioner of Taxation in the Federal Court hoping a ruling would confirm that SMSFs can invest in property sub-funds where the tenant of the underlying property is a related party of the SMSF.

The court heard it was in 2015 that the Benson family fund made a decision to invest in student accommodation and other ‘relatively low-cost, relatively high-return’ opportunities through a DomaCom sub-fund with a return of approximately 6.5%.

The decision to lease the Burwood property to the daughter was not made until 2017.

The appeal judges' ruling noted four reasons why the finding made by the primary judge was in error.

But the Court also held that the primary judge was correct to conclude that the units held by Aussiegolfa Pty Ltd in a sub-fund of the DomaCom Fund constituted an investment in a ‘related trust’ of the BFSF. 

“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.

The DomaCom Fund disclosure documents have been amended significantly since the Burwood sub-fund was created in 2015.

"Accordingly, we will analyse the effects of the judgment on sub-funds created using the current version of the DomaCom Fund constitution and disclosure documents," Arthur Naoumidis said.

"If our analysis determines that it is necessary, we will consider amending our constitution and disclosure documents to address this issue with respect to future sub-funds.” 

MT Flynn QC and Dr J Glover were counsel for Aussiegolfa Pty Ltd.

DomaCom launched Australia’s first online platform (registered as a managed investment scheme) to provide a property investment solution for the SMSF market and other long term investors through the fractional acquisition of units in a unique trust structure that enables investors to gain exposure to the property they select.