A tribunal decision upholding the ATO’s call to disqualify an SMSF trustee from acting as a trustee again is a reminder of the importance of SMSF trustee responsibilities.
The case illustrates how a person can be disqualified not only for breaching superannuation laws, but also if they are not a “fit and proper person” to be a trustee.
For many Australians, the control and flexibility offered by an SMSF makes this an attractive option for managing their superannuation. However, being an SMSF trustee carries significant responsibilities. Last year, the Administrative Appeals Tribunal affirmed a decision by the Commissioner of Taxation to disqualify a person from acting as a trustee of a superannuation fund. The case (Hart and Commissioner of Taxation  AATA 1267) illustrates the consequences that can flow when SMSF trustees do not take their responsibilities seriously.
A married couple were the trustees and members of their SMSF. After their marriage broke down in 2012, the SMSF’s auditor notified the ATO that the fund had breached a particular superannuation law. An ATO audit then uncovered many more compliance issues. The facts are complex, but some of the activities that concerned the ATO included:
- a supposed “investment” by the SMSF in a related Philippines company, where the face value of the issued shares was a fraction of the $100,000 paid for them;
- withdrawal of other moneys without meeting any condition of release;
- the husband declaring the wife’s benefits in the SMSF had been “forfeited”; and
- the purported transfer of the couple’s “hobby farm” into the SMSF that was: potentially not commercial property and therefore not legally able to be acquired from the members; not correctly registered in the name of the trustees; not transferred at market value; not clear of encumbrances; and leased rent-free to a related party of the fund.
These actions involved serious alleged breaches of numerous superannuation laws. Ultimately, the Commissioner exercised his power to disqualify the husband from being a trustee of a superannuation fund. The husband applied to the Tribunal for a review of the Commissioner’s decision.
The Tribunal’s findings
By law, the Commissioner may disqualify a person if either:
- the number or seriousness of the person’s contraventions of superannuation law justifies their disqualification; or
- the person is not a “fit and proper person” to be a trustee.
The Tribunal said the first ground was met because it was “abundantly clear” the husband had breached superannuation laws numerous times and the breaches were “extremely serious”. The Tribunal also found that the husband unquestionably failed the alternative “fit and proper person” test.
Notably, the Tribunal had observed:
- The husband gave “less than satisfactory” answers and tried to deflect responsibility or obfuscate the issues.
- He was not candid when dealing with the ATO.
- There was a “serious suspicion” that he had falsified signatures on documents.
- Some of the SMSF’s activities were “fraudulent” or “more than likely” a sham, and appeared to be “deliberately designed to divest the SMSF of its funds” so as to deprive the wife of her superannuation benefits.
The Tribunal therefore affirmed the Commissioner’s decision to disqualify the husband.
Lessons for SMSF trustees
While the misconduct in this case was extreme, the decision highlights several important principles:
- Honesty and candour when dealing with the ATO during an audit are important. The ATO and courts will not look favourably upon uncooperative SMSF trustees.
- Ignorance of the law or lack of skill is not an excuse; rather, these indicate that the person is not a “fit and proper person” to be a trustee.
- Even if a transaction does not technically amount to a breach of a particular law, when assessing someone’s character it is relevant that the person subjectively believed they were doing something that would have breached the law.
Understand your responsibilities
In order to hold benefits in an SMSF, you must be prepared to genuinely undertake trusteeship of the fund. Contact our office if you are considering establishing an SMSF and need more information about the duties and responsibilities of SMSF trustees.