The AAT has upheld the decision of the Commissioner that a self-managed superannuation fund (the Fund) should be treated as a non-complying superannuation fund and has refused to exercise the discretion pursuant to s 42A(5)(b) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) that would allow the Fund to be treated as a complying superannuation fund.
The members and trustees of the Fund were a husband, his wife and their son. The son had a drug addiction and took almost all of the money from the Fund and spent it or gave it away. Between 26 June 2002 and 25 July 2003 he took $40,260, $39,800 of it by 14 September 2002. The result of these actions was that these amounts were lost. The Fund is now effectively a shell. The son also took money from the accounts of a business conducted with his mother and lost that as well. His mother (the wife) had contributed the money to the business.
On advice from a registered tax agent, the trustees concealed the true nature of the use and loss of this money for 5 years. While not entirely comfortable that it was the right thing to do, the husband and wife accepted this advice and followed it.
In refusing to exercise the discretion, the AAT said at para 28:
"While tragic, the present circumstances are not those in which a discretion ought be exercised consistently with the principles governing exercise of discretionary powers. To do so would frustrate the wider objects of the SIS Act by relieving those responsible for superannuation funds of tax imposts where all of the assets of a superannuation fund are deployed inappropriately and lost as a consequence. Exercising a discretion in these circumstances is not consistent with the objects of the SIS Act."
Triway Superannuation Fund and FCT  AATA 302 (AAT, O'Loughlin SM, 10 May 2011).