As the regulator of self managed super funds, the ATO may disqualify people as trustees, or as directors of corporate trustees, of self managed superannuation funds in certain circumstances.  Broadly, those circumstances are where the person is considered not to be a fit and proper person or where the person has breached the SIS Act and due to the nature, number or seriousness of the contraventions, the person should be disqualified.

The ATO exercises this power liberally with 186 people being disqualified in the 2020 calendar year alone.

Disqualification is extremely serious – the person’s name is published in the Government Gazette and is placed on an easily searchable Excel spreadsheet on the internet for all the world to see.  Further, the disqualification is for life and effectively forces the person out of the self managed super fund system as a person can only be a member of a self managed fund if they are also a trustee or director of the trustee.

A recent decision of the Administrative Appeals Tribunal provides a glimmer of hope for trustees that the ATO’s right to disqualify is more limited than it thinks.

In the case of Coronica, the applicant was an accountant and tax agent of some 55 years experience.  He was the trustee of a self managed super fund that had accumulated a substantial balance and of which he was the sole member.

The ATO audited the fund and alleged numerous contraventions of the law.  These included a failure of the sole purpose test, a failure to keep super fund assets separate from personal assets, a breach of the in house asset rules and the acquisition of shares in a company controlled by the trustee at undervalue for the purpose of obtaining the benefit of the company’s franking credits.

The ATO issued a notice of non compliance against the fund and disqualified Mr Coronica as a trustee.  The disqualification decision was made on the basis of a breach of both the fit and proper person test and on the basis of the number and seriousness of the breaches that had occurred.

While upholding the ATO’s decision to render the fund non complying, the AAT determined that Mr Coronica should not be disqualified as a trustee.  Instead it accepted undertakings as to the future conduct of the fund particularly around the types of investments to be made the fund, and the appointment of an independent accountant, tax agent, lawyer and financial advisor for the fund.

In making the decision about disqualification the AAT had regard to the willingness of Mr Coronica to enter into undertakings and the fact that it concluded he was a low compliance risk going forward.  It separated the penalty for the previous breaches made by Mr Coronica as trustee of the fund – the fact that the fund had been made non complying – from the disqualification decision.

The Tribunal stated, “A past misjudgement of competence should not automatically result in what is in effect a lifetime ban.  Section 126A (the disqualification provision) of the Act requires an assessment as to whether that previous misjudgement is recognised, and action taken that it will not reoccur.”

The ATO has appealed the Coronica decision to the Federal Court querying whether the Tribunal’s decision was legally unreasonable given its findings as to the breaches made by Mr Coronica.  In the meantime many disqualified superannuation trustees will no doubt be making application to the ATO to have their disqualifications lifted in light of the Tribunal’s decision.

If you require advice on these issues, please contact me.

About the Author

Philip Diviny

Philip is a highly regarded tax lawyer with a broad-based tax advisory, tax controversy and international tax practice.

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