Superannuation law is a highly regulated environment. It is important for trustees to be across the unique challenges dealing with a self-managed superannuation fund (SMSF). The recent case of WZWK and Commissioner of Taxation (Taxation) (which we consider below) highlights the risks involved in a trustee acting improperly, and the detrimental tax consequences which can result.
What is a SMSF?
A SMSF is a form of trust which allows you to privately manage your funds or assets for retirement. That is, it is managed by the members of the fund with the sole purpose of providing future retirement benefits. A trust is an arrangement where a person or company holds assets for the benefits of others, known as beneficiaries.
A SMSF can be an attractive option for some, as it can provide one with the ability to take control of investment decisions and run the fund for their own benefit. However, with a SMSF comes responsibilities and obligations, including complying with the relevant superannuation and taxation laws.
What are the duties of a trustee of a SMSF?
There are duties which the trustee of a SMSF must meet in order to comply with the trust deed and the relevant rules and legislation. Failure to meet these obligations can have serious consequences. Obligations on the trustees include, but are not limited to –
Case Study: WZWK and Commissioner of Taxation (Taxation) [2023] AATA 872
In this recent case the Administrative Appeals Tribunal (the Tribunal) considered compliance of a Self-Managed Superannuation Fund (SMSF) and the actions of a trustee of that fund, under the Superannuation Industry (Supervision) Act 1993 (Cth) (the Act) and Superannuation Industry (Supervision) Regulations 1994.
In this case, the sole member and trustee to the SMSF was also a Chartered Accountant and approved auditor of other SMSFs. The Applicant (known as WZWK) appealed the decisions made against him by the Commissioner of Taxation (the Commissioner) to the Tribunal. The issue related to certain payments made from the SMSF and the taxation implications of these payments. The SMSF made payments to the Applicant from 2011 to 2016, following the termination of his employment.
In 2019, the Commissioner began an audit of the Applicant’s tax affairs from 2015-2017, specifically regarding the “non-commutable life pension” payments made out of the SMSF. The Commissioner referred the matter to the Australian Securities and Investment Commission (ASIC) with the opinion that the Applicant was not “fit and proper” to be an approved SMSF auditor, and that the Applicant failed to comply with his duties under the Act.
Ultimately, ASIC disqualified the Applicant as a SMSF auditor for “significant auditor independence breaches and deficiencies in auditing … compliance with in-house asset requirements and regarding a non-commutable life pension.” The Tax Practitioners’ Board terminated his tax agent registration and the Disciplinary Panel of Chartered Accountants ANZ suspended his membership.
As a result of the non-compliance, the Tax Commission issued an amended tax assessment, which showed that the tax payable on money received from the SMSF in the 2014-2015 financial year was now $226,787.29. Further penalties were issued for financial years thereafter due to the continued non-compliance. The Commissioner also disqualified the Applicant as a trustee of a fund. The Applicant then filed an application for this decision to be reviewed by the Tribunal.
The Tribunal heard arguments on whether the tax assessments were excessive, whether the Applicant failed to comply with the Act, and whether these breaches were of a nature which justified his disqualification as SMSF auditor and position as trustee. This came down to a question of whether the benefit received by the Applicant was paid in accordance with the Act.
The Tribunal found that the benefit paid to the Applicant was a defined benefit pension, and that this benefit was not permitted to be paid to the Applicant. As such, the Tribunal affirmed the original decision that the Applicant breached the regulations on benefit payments from a SMSF. The Tribunal held that the tax assessments under review were not excessive. In considering the breaches of the Act, the Tribunal confirmed the Applicant was not a fit and proper person and affirmed the decision to disqualify him from acting as a trustee to a SMSF.
We’re here to help
At Chamberlains Law Firm, the experts in our Private Wealth Law team can assist you. We specialise in superannuation law and can provide personalised advice on SMSF compliance. We can assist with the establishment of a SMSF in consultation with your accountant or financial advisor, together with ensuring documentation remains up-to-date and compliant in light of changes in the law. We can provide tailored advice to trustees regarding their duties and obligations, minimising death benefit taxes, implementing succession strategies for estate planning, reviewing trust deeds and more. If you require our assistance, please reach out to our team.
If you have any questions or concerns please contact our Private Wealth Director Ashleigh Blewitt on 02 6188 3600