SMSF Directors hit with $50,000 fine & costs

The Federal Court has imposed fines and costs of $50,000 on a husband and wife who acted as directors of the corporate trustee of their SMSF.  Essentially, the directors of the corporate trustee used their SMSF as a private bank.  They accessed their super balances as and when they liked by means of over 80 separate 'loans' and also used a fund asset to provide residential accommodation to their children free of charge. 

This activity clearly breached a number of SIS investment rules:  s65 (loans to members); section 84 (in house asset rules) and s109 (non arm’s length terms).  Additionally, the persistent pattern of conduct constituted a clear indication that the fund was not being maintained for approved purposes.

Significantly, the Court accepted that in imposing the fines a separate and single penalty should apply for each of the contraventions relating to the residential premises, but that a single penalty should apply to the conduct relating to the more than 80 loans.

The Court noted that the husband and wife had shown remorse as to their activities, they had co-operated with the ATO and had made a number of early admissions thereby saving the resources of the Court and the ATO, and had ultimately remedied the breaches. 

The Court imposed fines of $30,000 on the husband and $10,000 on the wife.  Additionally, they had to pay $10,000 towards the litigation costs of the ATO. 

While $50,000 may seem a significant penalty, the Court could have decided to treat each of the 80 loans as separate contraventions at $220,000 each.  Clearly there is some material advantage in co-operating with the ATO in these matters.

The case reference is “Graham Family Superannuation Pty Ltd” case [2014] FCA 1101.