As a recent case highlights, we take firm action against SMSF trustees who don't comply with the super laws. We can make a fund non-complying, disqualify trustees and apply to the court for the imposition of monetary penalties.
In the case of Olesen v Parker [2011] FCA 1096, the Federal Court imposed penalties totalling $50,000, plus $5,000 in legal costs, on husband and wife trustees who seriously contravened the super laws. The penalties were additional to previous action taken by the ATO which included disqualifying the trustees and making their SMSF non-complying, removing their income tax concessions and resulting in a $139,570 income tax liability.
The SMSF made a number of loans to related entities breaching the In-house assets and transitional rules, the arm's-length investment rules and the sole purpose test.
In determining the seriousness of the contravention and the penalty, the court considered factors including the nature and extent of the contraventions, the trustees' knowledge of their obligations under the super laws and the amount of loss or damage caused.
The court found the contraventions were deliberate and repetitive, having taken place over a period of over three years. The market value ratio of the fund's in-house assets significantly exceeded the 5% limit in each of the relevant years. The trustees were also aware of their obligations under the super laws, having been permitted to rectify previous breaches by way of an enforceable undertaking.
The court also found that the contraventions put a significant amount of the fund assets at risk. By the end of the contravening period, the account balance of the fund was reduced to almost nil. Given the dominant role played by one trustee in relation to the contraventions, the penalty of $50,000 was apportioned in the amounts of $35,000 and $15,000. The court found that such penalties strike an appropriate balance between deterrence (specific and general) and penalty for the contravening conduct without being oppressive.
This decision makes it clear that there can be severe consequences for SMSF trustees who do not comply with the super laws.
Last Modified: Friday, 9 December 2011