The Federal Court has granted the Commissioner an interim injunction to restrain an alleged promoter of an illegal early release scheme from being involved in the establishment of self-managed superannuation funds (SMSFs) and directed that the Commissioner be allowed to serve notice of these proceedings, on the Respondent: Ms Pavihi, by email, as she was out of the Country (in Tonga).
On 18 October 2018, the Commissioner commenced legal action against the respondent, Ms Kalangalupe Pavihi, seeking an injunction and civil penalty. The ATO alleged that Ms Pavihi contravened s 68B(1) of the SIS Act by promoting to trustees of SMSFs a scheme that resulted, or was likely to result in an early release of funds from a SMSF that was not permitted by law – in that it was paid without complying with any of the ‘payment standards’. (It is likely that no attempt was made to comply with these standards – not even applying to the Commissioner for early release on ‘compassionate grounds’ under SIS Reg 6.19A.)
- s68B of the SIS Act is a section focussed exclusively on ‘illegal early release schemes’ and provides that ‘promoting’ such schemes is prohibited and is a civil offence.
- s315 of the SIS Act, then provides that the Commissioner of Taxation (the ‘Regulator’ for SMSFs) may apply for an injunction to prevent such a contravention.
A tax officer from the ATO’s Aggressive Tax Planning Team provided evidence about its investigation of the respondent in relation to 34 SMSFs. The ATO alleged that the respondent was paid $2,000 for her involvement in establishing SMSFs for vulnerable individuals and rolling over their benefits from an industry super fund. The money was then withdrawn from the SMSF and used by the beneficiaries for personal purposes.
In granting the interim injunction, the Court restrained the respondent from directly (or indirectly) inducing, advising or assisting or facilitating any person to establish a SMSF; rollover or transfer of money or property from any other funds into a SMSF; or make payments from a SMSF.
The Court said the strength of the prima facie case, and the desirability to protect the public, outweighed any potential prejudice to the respondent.
The Court also ordered that the Commissioner be allowed to serve the Respondent, whilst overseas, by email.
(CofT v Pavihi  FCA 1603, Federal Court, Wheelahan J, 23 October 2018.)
CPD questions (answers available)
- Was the Respondent: Ms Pavihi, arranging for ‘clients’ to form SMSFs, into which they would ‘roll’ their benefits from other funds (usually industry super funds), and then withdraw the benefits, for personal use, without complying with any of the ‘payment standards’?
- Was that in contravention of the SIS Act?
- What section?
- What is that section about?
- Is contravention of this section punishable as a civil penalty?
- Can the Regulator seek injunctions to prevent conduct likely to result in a contravention of the SIS Act?
- Under what section?
- What sort of injunction was granted?
- Was the Respondent overseas at the time of this hearing?
- In what country?
- What related order was made?