Individual versus corporate trustee – one of the
common questions for SMSF trustees.
Many opt for individual trustees for their SMSF, but is there
potential for a real sting in the tail?
Being an individual trustee makes you responsible for the
actions of your fellow trustee, and liable for any resulting tax,
even if those actions were done without your knowledge.
Recently the Administrative Appeals Tribunal affirmed the
decision by the ATO to declare a SMSF non-complying after one of
the trustees misappropriated funds without the knowledge of the
other trustee and then absconded. This resulted in the remaining
trustee being liable for a very significant tax bill with few
remaining resources in the Fund.
Shail Superannuation Fund and Commissioner of Tax 
AATA 940 involved a SMSF with a former husband and wife as
individual trustees and members.
The husband removed $3,460,000 from the Fund's bank account
without the wife's knowledge. The couple divorced and the
husband disappeared overseas.
At the time of the withdrawals neither member was entitled to
draw any benefits from the Fund.
The ATO declared the Fund non-complying, with the result being
tax payable by the Fund of $1,583,873.68, with additional penalties
of $1,475,322.50. There was no dispute that the wife had no
knowledge of, and did not consent, to the actions of the
The wife argued that the Fund should not be made non-complying
because of the significant tax consequence for her. The AAT found
that, although it was not difficult to feel some sympathy for the
position in which the wife found herself, the tax assessment and
penalties should be upheld for policy reasons.
The situation would not have been so dire for the wife if a
company had been trustee. As an individual trustee, the wife was
personally responsible for the Fund's tax liability, even
though it arose from events with which she had no knowledge or
involvement. This is not the case if the trustee is a company.
This is not an isolated incident, as similar issues arose in
Triway Superannuation Fund and Commissioner of Taxation 
AATA 302 where a trustee and member (a drug addict son)
withdrew almost all the money in the Fund. Again the AAT (while
expressing sympathy for the other trustees' plight) upheld the
notice of non-compliance, with the effect the other trustees
remained liable for the tax with no resources in the Fund to pay
When these risks are considered the cost of having a corporate
trustee represents money well spent.
We will discuss this issue in more detail at our Superannuation
Update on 23 February 2012.
Click here to register to attend.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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