Don’t use your fund as a private bank account

In a recent case, the non-compliance of a self managed superannuation fund was confirmed by the AAT. 

The background is that the self managed superannuation fund was essentially used by the principal behind the fund as a private bank account, by which the principal lent almost all of the monies of the fund to a controlled company which, in turn, on-lent money to associated companies and individuals.

The ATO issued a notice of non-compliance in relation to the fund on the basis that the fund contravened the following SIS Act provisions: s62 (sole purpose test), s65 (financial assistance to members/relatives), s84 (in house asset rules) and s109 (arm’s length investment rule).

The ATO also held that there was no justification for disregarding the various contraventions.

In confirming the decision of the ATO, the AAT noted in particular that the contraventions were repeated and systemic: that the various loans to the controlled company were not supported by loan agreements and that no security was provided for the loans.  Further, that the attempt by the principal to disguise his control over the controlled company (by introducing other directors and for a time not being a director) was not effective as he was the controller and the other directors acted in accordance with his wishes.

Reference details: The Trustee for the R Ali Superannuation Fund v Commissioner of Taxation [2012] AATA 44