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The Administrative Appeals Tribunal 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. The case is Re Trustee for the R Ali Superannuation Fund and FCT.Stuart Jones, Thomson Reuters
During 2005 to 2008, an SMSF accepted contributions and roll-overs in respect of a tax agent, his wife and 2 daughters — all of whom were trustees and members of the SMSF.
The SMSF trustees then lent the money to an intermediary company controlled by the tax agent which on-lent that money to the SMSF members and to entities in which a member had an interest. For all but one of the loans, there were no written loan agreements and security was not provided.
The Tax Office alleged that the intermediary company's object was to borrow money from regulated superannuation funds and to lend money to parties connected with those funds.
After an audit of the SMSF, the Commissioner issued the SMSF with a notice of non-compliance under s 40 of the SIS Act for contravening the following regulatory provisions:
The trustees applied to the Tribunal for a review of the Commissioner's decision not to exercise his discretion under s 42A(5)(b) to treat the SMSF as a complying fund despite the contraventions. The trustees' application was based on the arguments that:
The Tribunal 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.
Although the loans were ultimately repaid to the SMSF, the Tribunal said the breaches:
Also, the Tribunal commented that the trustee (as an accountant) ought to have known that such arrangements contravened the SIS Act.
Accordingly, the Tribunal ruled that this was not a case where the Commissioner's discretion in s 42A(5)(b) should be exercised at it would frustrate the wider objects of the SIS Act.
Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please
 AAT Case  AATA 44, Re Trustee for the R Ali Superannuation Fund and FCT (AAT, Ref No 2010/4319, O'Loughlin SM, 30 January 2012, to be reported in ATR).
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