The AAT has set aside a non-compliance notice issued to a self-managed superannuation fund (SMSF) for regulatory breaches involving loans to a related company.
- The applicants were the husband and wife trustees of an SMSF and between 2004 and 2007, the SMSF loaned $307,000 to a property development company of which the trustees were directors.
- During an audit, the Commissioner identified a breach of the in-house asset provisions under the SIS Act in respect of the loans.
- The trustees provided an undertaking to the Commissioner that they would repay the loan from the company to the SMSF by 30 September 2009.
- The loan was not repaid by this date and the Commissioner issued a notice of non-compliance under s 40 of the SIS Act, making the fund non-complying and resulting in a $145,619 tax liability.
The AAT set aside the Commissioner’s notice of non-compliance after ruling that the exercise of his discretion under s 42A(5)(b) of the SIS Act would not be inconsistent with the objects of the SIS Act despite the contraventions. While the AAT found that the contraventions were “serious”, it said they were not “wilful” and the impact on the fund had not been significant as the loans were eventually repaid (albeit late). The AAT also noted that the tax consequences would be significant. The AAT said the case was “finely balanced” but held that it would be “disproportionately harsh” not to exercise the discretion under s 42A(5)(b) in favour of the trustees of the SMSF. When all of the circumstances were considered, the AAT said the trustees’ most significant breach was their failure to rectify the contravention in a timely manner.
(AAT Case [2012] AATA 375, Re Pabian Park Pty Ltd Superannuation Benefits Fund and FCT, AAT, Ref No: 2010/2004, Redfern SM, 21 June 2012.)
[FJM Note: Compare this with the much harsher result in Re JNVQ and Commissioner of Taxation (2009) 74 ATR 730; [2009] AATA 522.]
[LTN 119, 22/6]