The Federal Court has ordered that a trustee of a self-managed super fund (SMSF) pay a monetary penalty of $32,500 for contraventions of the SIS Act relating to the making of 6 loans to a relative of a member of the fund.

The Court noted the parties jointly submitted that the trustee pay a monetary penalty of $32,500 plus $5,000 towards the Deputy Commissioner’s costs.

The Court said the trustee had admitted to multiple contraventions of the following provision of the SIS Act:

  • s62 (sole purpose test),
  • s65 (prohibition on lending to members of regulated super funds),
  • s84 (compliance with in-house asset rules); and
  • s109 (investments to be made and maintained at arm’s length) of the SIS Act.

Chiefly, the Court heard details of 6 loans to the trustee’s brother-in-law, who then transferred the funds to provide working capital to a retail business operated by the trustee and his former wife (both trustees and the only members of the fund at the relevant times).

The value of the fund’s assets as at 30 June 2009 was id=”mce_marker”93,939 and the market value of the fund’s in-house assets at that date was id=”mce_marker”90,000. The in-house assets, being the loans to the brother-in-law, were not recoverable.

The Federal Court was of the view that the proposed orders (including payment of the penalty by instalments) sought by the parties were appropriate. Among various considerations, the Court noted the trustee cooperated with the Deputy Commissioner in identifying relevant materials and facts at an early opportunity and immediately entered into negotiations with the Deputy Commissioner.

(DCT v Lyons [2014] FCA 1353, Federal Court, Bennett J, 12 December 2014.)

[LTN 242, 15/12/14]