Self-managed super fund trustees who breach the rules and end up in trouble with the ATO may not get a second chance, as a recent Administrative Appeals Tribunal case shows.
In a ruling on an appeal over a trustee’s disqualification, the AAT said the “significant” tax concessions available through super were only available when trustees followed the rules. Good intentions are not enough.
Troy Brooks and his then wife (referred to as Ms A) set up an SMSF in 2011. They were the only members of the fund and were directors of the company that was trustee of the fund.
In the period between June 2011 and June 2013 a number of withdrawals were made from the fund and deposited into the personal bank account of Brooks and Ms A. Some of the money was used to purchase a property.
Over the period under investigation total debits from the fund were $257,796, which the fund recorded as a loan to Brooks and Ms A. The fund’s closing balance on 30 June 2013 was $11.55.
Brooks and Ms A separated in 2011 and divorced a year later. In 2014 the Family Court made orders dealing with the super fund and the investment property.
Later that year an auditor’s report for the fund stated that the loan had breached superannuation rules. The auditor reported that Brooks and Ms A had agreed to rectify the breach by repaying the money.
In a separate disclosure sent to the ATO, it was proposed to rectify the breach by transferring the investment property to the fund with interest.
Some money was repaid but not the full amount. An auditor’s report in 2015 found that the fund was in breach to the value of $122,298.
In March 2015, Brooks and Ms A gave the ATO an enforceable undertaking, agreeing to repay the loan with interest.
In November 2017 the ATO disqualified Troy Brooks from being a trustee of a self-managed superannuation fund. The ATO disqualification was upheld by the Administrative Appeals Tribunal.
In a ruling handed down last month, the tribunal notes that there were six contraventions in all over a five-year period from 2011. They included withdrawing money from the fund as a loan to members, making investment decisions that were contrary to the purpose of the fund (investing in related parties), which exposed to fund to significant financial risk and depleted the fund within months of its establishment.
The Tribunal said it was concerned that there was a risk of future non-compliance. “The applicant [Brooks] did not appear to understand his role and duties as a corporate trustee.”
Brooks told the Tribunal that he had learned from his mistakes and that he wanted to maintain and grow his superannuation.
The AAT wasn’t convinced: “Despite the applicant’s good intention, there are significant taxation concessions applied to superannuation contributions and earnings, and those concessions cannot continue to be enjoyed when funds are withdrawn, contrary to the legislation.”