Non-com­pli­ant funds walk a very fine line

Mercury (Hobart) - Property - - Finance And Conveyancing -

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.

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