A Self-Managed Superannuation Fund (“SMSF”) is a legal tax structure in Australia, with the sole purpose of providing for your retirement and they are used in place of paying your superannuation into a public fund. Administered by the Australian Tax Office (“ATO”), a SMSF can have between one and four members, with each member being a trustee of the fund.
While there are many benefits to managing a SMSF, including the ability to purchase investment property, it can be a complex beast and there are penalties that can imposed for any breaches of the Superannuation Industry (Supervision) Act 1993 (“SIS Act”).
A recent case where trustees of a SMSF had penalties imposed on them for breaches of the SIS Act is that of Deputy Commissioner of Taxation v Ryan [2015] FCA 1037. In this case the trustees of the SMSF, Mr and Mrs Ryan, were found to have withdrawn a total amount of $209,677.00 of the superannuation funds that were in the SMSF.
These withdrawals were found to be in breach of the SIS Act, as they were treated as loans, but were undocumented, unsecured, with no interest being paid and no repayment date set. Of the $209,677.00 withdrawn the trustees repaid an amount of just $28,313.00.
The Federal Court found that the trustees had committed contraventions of the sections of the SIS Act; 62 (sole purpose test), 65 (loans to members), 84 (in-house assets) and 109 (not dealing on arm’s length terms).
The court imposed pecuniary penalties upon the trustees of $20,000.00 each, to be paid in monthly instalments over three years, disqualified them from being trustees of any superannuation entity and ordered their remaining superannuation benefits be rolling into a public superannuation fund.
The trustees were also ordered to pay the court costs of the ATO.
This case serves as a good example of the repercussions for a trustee abusing their role in managing a SMSF, as the financial costs can be significant for any breach of the SIS Act.