No joy in pulling the ATO’s tail

From
Peter Townsend

Peter Townsend

An SMSF trustee who objected to an ATO determination about a breach of a trustee’s covenant found himself disqualified as a trustee.

George Hart was a trustee of the Hart Superannuation Fund, a self-managed fund set up in 2003.

The auditor of the fund lodged a contravention report against the fund because George arranged for the fund to buy a property but did not put it in the fund’s name or, more precisely, the name of the trustees of the fund.  This is a breach of s.52(2)(d) of the SIS Act (the Act).

Having been notified of the contravention the ATO decided to audit the fund itself.  During its audit the ATO found that George had arranged for the fund to buy the property from George himself (and his then wife).  As the property wasn’t business real property this was another contravention.

So far that made it ATO 2 – George 0.

The ATO advised that it considered George should be disqualified as a trustee because of these contraventions and because George’s actions:

  • breached s.66 of the Act which prohibits a trustee from intentionally acquiring an asset from a related party,
  • breached regulation 4.09A which requires the trustee to keep money and assets of the fund separate from money and assets held by the trustee personally, and
  • breached regulation 13.14 which prohibits a trustee giving a charge over an asset of the fund.

S,126A of the Act permits the ATO to disqualify individuals if satisfied that they are not a fit and proper person to be a trustee.

The ATO invited George to put his side of the story and show why he shouldn’t be disqualified.

George manfully put his position to the ATO.

They were unconvinced and disqualified him from acting as the trustee of the fund … or in fact any super fund.

ATO 3 – George 0

George was affronted.  He pulled out his lawyer.

S.344 of the Act permits a person affected by a reviewable decision to request the Regulator [the ATO] to reconsider the decision.

His lawyer asked the ATO to reconsider its decision, pointing out the numerous arguments George had to defend his actions.

The ATO refused to change its decision.

ATO 4 – George 0

Faced with this outrageous attitude of the Regulator, George did what any red-blooded super trustee would do – he appealed to the AAT.

S.344(8) of the Act provides that applications may be made to the Administrative Appeals Tribunal for review of decisions of the Regulator (ie ATO).

But while George was gearing up for war with the ATO, they were gearing up for war with him.

Further investigations followed and by the time the matter came before the AAT the ATO had amassed roughly 20 contraventions of the Act that they could lay at George’s door including:

  • failure to lodge annual returns of the fund for four income years
  • failure to meet a condition of release (set out in Column 2 of Schedule 1 to the SIS Regulations) when paying monies out of the fund
  • providing financial assistance to relatives in contravention of s. 65 of the Act
  • breaching the in-house assets exception in s. 66(2A) of the Act
  • breaching the arm’s length requirements of s. 109 of the Act
  • having 5 members in the fund contrary to s. 17A(1) of the Act
  • failing to comply with SIS Regulations 504 and 506 to pay members minimum benefits when their interest in the fund has been forfeited and they ceased to be a member
  • failing to act in the best interests of all beneficiaries
  • breaching the sole purpose test

ATO 24 – George 0

Needless to say the AAT confirmed the ATO’s decision to ban George because he was not a fit and proper person.

ATO 25 – George 0

The moral of this story?  Not sure where to start really …

Because the state gives tax concessions in relation to the operation of superannuation they impose many rules to ensure the proper, lawful and prudent operation of superannuation funds.  They reserve the right to prevent those who don’t abide by those rules from being involved in superannuation administration.

Don’t take the rules lightly if you want to enjoy the concessions.

By Peter Townsend, Principal

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