In a rare win for the taxpayer, the Administrative Appeals
Tribunal (AAT) has set aside the decision of the Australian
Taxation Office (ATO) to issue a non-compliance notice to the
trustee of a self managed superannuation fund in Pabian Park
Pty Ltd Superannuation Benefits Fund v FCT.
The issue was not whether the Fund had breached the
Superannuation Industry (Supervision) Act (SIS Act), but
rather, whether the ATO's decision to issue a notice of
non-compliance was an appropriate exercise of its discretion.
The Fund was used as a lender of last resort to maintain a
related property development business. Over a three year period,
the trustee of the Fund advanced over $300,000, which represented
up to 40% of the Fund's assets, to a related entity.
The trustees of the Fund entered into an enforceable undertaking
to have the loans repaid by 30 September 2009. In October 2009, the
trustees advised the ATO that the related entity had failed to sell
two of its properties and had not repaid the loans to the Fund.
The ATO issued a notice of non-compliance to the trustees of the
The AAT considered the following factors counted against the
taxpayer when reviewing the ATO decision:
The loans contravened the in-house asset rules,
arm's-length provisions and sole purpose test.
The loans were not initially documented or on commercial
Only limited attempts were made to repay the principal loan
amounts until June 2010.
The loans exposed the Fund to the high risks associated with a
property development business.
The parties did not comply with the enforceable undertaking nor
did they inform the ATO when it was clear that they were unable to
comply with the terms of the enforceable undertaking.
The related party purchased an additional property in March
2010 rather than repay the Fund (this reflected poorly on the
parties' attitude to compliance).
The trustee's lack of knowledge of their legal obligations
was not a valid excuse.
On the other hand, the AAT considered the following factors
supported the trustee's argument that the ATO decision to issue
the non-compliance notice was not an appropriate exercise of the
The trustees had engaged accountants and auditors to provide
advice and monitor compliance.
The related entity experienced difficulty in attempting to sell
its properties following the GFC.
The NAB required their indebtedness to be reduced first, prior
to any money being repaid to the Fund.
The wife had been seriously ill in late 2009 and early 2010,
which required them to travel to Sydney for treatment.
The loan had been repaid (although it was unclear if
appropriate interest had been paid).
There were no other non-compliance issues in the Fund's
A finely balanced case – what was the tipping
In this case, age was the most significant factor in the
taxpayer receiving a favourable result. The AAT commented that:
the members were both over 65 years old and would have little
opportunity to rebuild their retirement savings
although the members had substantial assets outside
superannuation, they did not have much capital as the majority of
those assets had been encumbered
despite the number of unfavourable factors against the
taxpayer, the taxpayer's biggest failure was that they did not
rectify the breaches in a timely manner.
As a result, the AAT believed that the seriousness of the
taxation consequences would be disproportionately harsh in the
circumstances and leave the members with minimal retirement
Will the next taxpayers be so lucky?
The taxpayers were very fortunate in this case. This decision
once again indicates that, if the trustees of a self managed fund
have breached the requirements of the SIS Act, they will maximise
their prospects of avoiding the issue of a non-compliance
certificate if they:
work with the ATO
take positive steps to rectify any breaches
rectify breaches in a timely manner.
Winner - EOWA Employer of Choice for Women Citation 2009, 2010
Winner - Australasian Law Awards Gold Employer of Choice 2011
Finalist - ALB Australasian Law Awards 2008, 2010 and 2011 (Best
Winner - BRW Client Choice Awards 2009 and 2010 - Best Australian
Law Firm (revenue less than $50m)
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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