Non-compliant funds walk a very fine line
Karina Barrymore THEAustralian Taxation Office has stepped up its stand against selfmanaged superannuation funds and their members, with more than 100 funds declared non-complying during the past year.
This compares with just a handful of noncompliant orders previously and is being followed up with unprecedented legal action by theATOagainst the trustees and members of these funds.
‘‘TheATOis not only shutting down the super fund, but they are also nowtaking the trustees and fund members to court,’’ DBALawyers senior associate Bryce Figot says.
Asuper fund is declared non-compliantwhenit breaks the law, such as early withdrawals, being involved in related-party transactions or other breaches of superannuation law.
Typically these funds lose their tax benefit status and must therefore pay extra tax on their total assets and investment earnings.
NowtheATOis adding Federal Court action and fines to the penalties.
‘‘There’s no doubt the ATOhas switched from education to compliance, and quite a few trustees have been taken to court,’’ Figot says. ‘‘TheATOis also asking the court to impose penalties personally on the trustees and members. In the past, a trustee might contravene the legislation and theATOmight [just] make the fund noncomplying.
‘‘However, that’s no longer the end of the story. In a recent case, a trustee was also fined $15,000 in the Federal Court, despite pleading difficult personal circumstances.’’
According to the latest report by self-managed fund auditor Partners Group, 3.4 per cent of funds broke the law last year. This was half the amount of the previous year.
Partners Group partner Martin Murden agrees theATOis taking a tough stand on deliberate contraventions, though it is still showing leniency for innocent breaches.
‘‘In some cases, the Tax Office is still telling people to ‘go and get it fixed’, but in blatant breaches it’s a different case,’’ Murden says.
He says last year the ATOreceived about 9000 contravention reports from self-managed fund auditors. However, most were minor problems and were easily corrected.
The recent Federal Court case that resulted in a $15,000 fine involved a 41-year-oldmanwhoset up hisownsuper fund.
Themanleft school at 15 and had been working in the food industry ever since, accumulating about $60,000 in various super funds.
To start his new selfmanaged fund, he rolled in his combined $60,000 of super. However, at the time he was also in financial difficulty after a marriage break-up and was paying child support, a mortgage on the matrimonial home and supporting himself.
He told the court that almost as soon as the selfmanaged fund was established he started withdrawing money, including the first misappropriation of $5500 to repay money to his exwife. Other withdrawals were used to pay bills and liabilities, school fees and to meet his daily living expenses.
The auditor of the fund discovered the withdrawals, which totalled 98 per cent of the fund balance, and alerted the Superannuation Commissioner, who instructed themanto immediately repay the money. Instead, theman withdrew the remaining 2 per cent balance.
Figot says the $15,000 penalty was not as severe as it could have been, but says that it still clearly showed that the courts would not take these cases lightly.
CRACKDOWN: The Australian Taxation Office is taking a firm stand against self-managed super funds found breaking the law.