14 Mar SMSF trustee non-compliance results in Federal Court rulings
A recent Federal Court ruling serves as a reminder that running a Self Managed Super Fund (SMSF) comes with additional responsibility and risk.
The following is a summary of the recent court decision of Deputy Commissioner of Taxation v Lyons  FCA 1353. In 2008, Mr and Mrs Lyons whom ran a retail business opened a SMSF. The business continued to operate, however began to struggle financially, eventually having to declare bankruptcy in 2010. Prior to becoming bankrupt, in order to address the businesses financial struggles, Mr Lyons discreetly transferred a total of $190,000 to the retail business through a third party as a loan (his brother in law). These loans were deemed non-compliant despite contradicting professional advice given by Mr Lyon’s financial planner. It is prohibited for SMSF’s to loan to a related party (SMSF member or family member) and although, Mr Lyons sought advice; he was penalised a total of $37,500 by the federal court.
Normally all listed trustees of a SMSF would be equally liable for non-compliance rulings; however in this case, Mrs Lyons was not targeted throughout the court proceedings. The Federal court’s ruling has been described lenient considering the breaches made. This clemency was given as a result of full cooperation once the breaches were identified and reported by the SMSF auditor. The incorrect professional advice which was relied on was also taken into consideration in the Federal court’s decision.
Although superannuation can traditionally be accessed due to financial hardship; it must be noted that a total of $10,000 is the annual limit. Further to this, access must be applied for and authorised before a ‘condition of release’ is granted.
A lesson to be learnt from Mr Lyon’s is that decisions made, based on professional advice, do not always ensure compliance and proves to be no excuse through the courts eyes. Trustees incur full responsibility independent of professional consultation and should therefore seek comprehensive knowledge including full accountabilities and risks associated with managing a SMSF.