AAT decision focuses on related party transactions
A recent Administrative Appeals Tribunal (AAT) decision has highlighted the need for self-managed super fund (SMSF) advisers to appropriately benchmark related party transactions, according to Bryce Figot, senior associate at DBA Lawyers.
Revolving around a family SMSF setup, multiple transactions were made between the fund and Alnaz Pty Ltd, a company controlled and directed by one of the funds' trustees, Mr Ali. However, the transaction receiving the most attention was a loan from the fund to Alnaz and then from Alnaz to Ali's daughter.
It appears that from August 2008, Ali started to take steps to rectify the situation but, by that time, the fund had already started to receive Australian Taxation Office (ATO) scrutiny. A notice of compliance was subsequently issued, a decision which has now been upheld by the AAT.
For Figot, although this decision highlights an instance where the arm's-length provision for SMSF borrowings has been contravened, the more important lesson to be learned is that prevention is better than cure.
"In determining that the contraventions of the superannuation legislation were serious, it was noted that the 'breaches…were only corrected after the Commissioner's activities commenced,'" he said.
"Accordingly, this serves as an important reminder: to err is human, to pro-actively rectify divine.
"Naturally, contravening the superannuation legislation will not automatically result in the ATO issuing a notice of non-compliance," Figot continued.
"Mistakes happen but, if the trustees take quick action to fix any mistakes as soon as they become aware of them, then the ATO may well look favourably upon the situation and not issue a notice of non-compliance.
"Naturally, though, the best course of action would have been prevention, because by the time the cure was administered (ie, repayment of the loans), it was too late."
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