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The AAT has affirmed the Commissioner's decision that a self managed superannuation fund was not a complying superannuation fund for the 2006 year of income because of the trustees' contravention of various provisions of the Superannuation Industry (Supervision) Act 1993.

Amongst other things, the AAT held that the trustees made loans to a related party that amounted to effectively 100% of the fund’s assets in contravention of s 62 of the SIS Act (the sole purpose test). Further, at least some of the loans were not made on an arms-length, commercial basis and were unsecured. Non-arm’s length dealings with fund assets are prohibited by s 109(1) of the SIS Act which the AAT held was also contravened. Back to back loans were made by the related party to a member of the fund. This too contravened s 62.

The AAT also affirmed the Commissioner's decision not to issue a notice of compliance by exercising his power pursuant to s 42A(5)(b) of the SIS Act. In relation to the submission that the Commissioner should have exercised his discretion in the trustees' favour, the AAT said, at para 69, as follows:

"The Act plays an important role in the wider system of encouraging the community to provide for their own retirement and ease the strain on public welfare resources. In the present matter, the breaches of the standards required of superannuation funds to be concessionally taxed are particularly serious. 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 Act by relieving those responsible for superannuation funds of tax imposts where all of the assets of a superannuation fund are managed in a contrary manner to various control measures under the Act. Exercising a discretion in these circumstances is not consistent with the objects of the Act."

The Trustee for the R Ali Superannuation Fund and FCT [2012] AATA 44 (AAT, O'Loughlin SM, 30 January 2012).


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