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The ATO has issued a Decision Impact Statement in relation to the decision of the AAT in Pabian Park Pty Ltd Superannuation Benefits Fund and FCT [2012] AATA 375; 2012 ATC 10-253.

The case concerned whether a notice of non-compliance issued to the trustee of a self managed superannuation fund (the Fund) should be confirmed or revoked.

The Fund made a loan to a related company which represented more than 5% of the market value of Fund assets. The Fund was therefore in breach of the sole purpose and "in-house assets" rules, and it failed to remedy the breach in the time allowed by the Commissioner. The Commissioner then issued a notice of non-compliance. The trustee sought a review of the Commissioner's decision and requested the AAT to exercise its discretion to declare the Fund complying notwithstanding the breaches.

The Decision Impact Statement states as follows:

"As a result of the Fund becoming non-complying, the taxable income for the Fund increased from $56,361 to $309,827, with gross tax increasing from $8,454.15 to $145,618.69. The AAT found the adverse tax consequences were significant and that this would leave the members of the Fund with minimal savings in their Fund...

The AAT accepted (consistent with PS LA 2006/19) that the discretion is to be exercised taking into account the objects of the SIS Act, and noted that the case was 'finely balanced'. Failure of the Applicants to appreciate the seriousness of the issue was a 'serious error of judgment', but it would be 'disproportionately harsh not to exercise the discretion in their favour'. The Tribunal concluded that, 'weighing up all the factors', it would 'not be inconsistent with the objects of the SIS Act to exercise the discretion in favour of the Fund'...

Although the AAT reached a conclusion different to the Commissioner on exercise of the discretion, it is acknowledged that the case was finely balanced and that it was open to the Tribunal to reach its decision on the facts as found. In doing so, the AAT also accepted and followed the general approach taken in PS LA 2006/19."


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