The AAT has upheld a non-compliance notice issued to a self-managed superannuation fund (SMSF) for regulatory breaches in respect of loans made to a related company.
- During 2005 to 2008, the SMSF accepted contributions and roll-overs in respect of a tax agent, his wife and 2 daughters.
- This money was then lent to a company controlled by the tax agent, which on-lent that money to fund members.
- Following an audit, the Commissioner issued the SMSF with a notice of non-compliance under s 40 of the SIS Act for contravening the regulatory provisions in ss 62, 65, 84 and 109.
The AAT upheld the Commissioner’s decision not to exercise his discretion under s 42A(5)(b) to treat the fund as a complying fund despite the contraventions.
The AAT found that the loans were made to a related party and involved serious breaches of the regulatory provisions, including the sole purpose test. Although the loans were ultimately repaid to the fund, the AAT said the breaches exposed 100% of the fund’s assets and involved multiple contraventions over an extended period. It also noted that the trustee (as an accountant) ought to have known that such arrangements contravened the SIS Act. Accordingly, the AAT ruled that this was not a case where the Commissioner’s discretion in s 42A(5)(b) should be exercised as it would frustrate the wider objects of the SIS Act.
(AAT Case [2012] AATA 44, Re Trustee for the R Ali Superannuation Fund, AAT, Ref No 2010/4319, O’Loughlin SM, 30 January 2012.)
[LTN 19, 31/1]