Does your self managed superfund comply with its obligations?

Posted on February 5th, 2015

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by Tony Cavanagh

Tony Cavanagh is a Director at Mullane & Lindsay in Newcastle and specialises in commercial dispute resolution & litigation, and employment law.

Self managed superannuation funds (SMSF’s) are a fact of life in Australia. On some measures, they collectively hold much greater wealth than either industry or retail funds, although many of them are relatively small in terms of the wealth they control. Despite that, SMSF trustees must comply with their trustee obligations, including under the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’) or they risk significant consequences – both for the SMSF and for themselves personally.

In DCT v Lyons [2014] FCA 1353 the trustee of a SMSF made a series of loans, from the fund to a relative. The ultimate purpose of the loan was to support the trustee’s personal business. None of the loans was authorised by the SMSF trust deed and all of them were in breach of the SIS Act. The loans were apparently made on the advice of a financial advisor, but the advice was incorrect.

When the SMSF was later audited, the breaches were revealed. The ATO then issued a non-compliance notice against the SMSF and also commenced proceedings against the trustee personally. Ultimately, a civil penalty was imposed on the trustee personally of $35,000.00. He also had to pay costs. Perhaps more significantly, the non compliance notice resulted in the SMSF losing the concessional tax treatment it would otherwise have obtained. The SMSF had to pay tax, on the whole of its assets (not just the loan amounts) at a higher rate.

As the loans had apparently been made on the basis of professional advice, the SMSF and the trustee may well have had damages claims against the advisor; but the case illustrates the importance of SMSF trustees understanding and complying with their legal obligations; and highlights the possible consequences that might flow if they do not.

Tony Cavanagh is a Director at Mullane & Lindsay, and practises extensively in Commercial and other Litigation and Employment Law. If you require any assistance in these areas please contact Tony Cavanagh or contact our Newcastle office.

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