Two Federal Court decisions from 2014, DCT v Lyons and DCT v Graham Family Superannuation Pty Ltd have demonstrated the Court’s relatively lenient approach to applying penalties under the Superannuation Industry (Supervision) Act 1993 (SIS Act) for cases involving multiple numbers of very serious breaches.
Each case involved the personal use (through loans and the use of personal assets) of all or most of the self managed superannuation fund’s (SMSF’s) assets involving multiple breaches of the SIS Act. For example, in the Lyons case, loans were made to a related business totalling $190,000 (being all of the assets of the SMSF) which were never repaid (as the business failed). Despite the seriousness and the number, of breaches, the Court only applied penalties of $32,500 and $40,000 respectively for all breaches (the maximum penalty for each breach is $220,000).
Both decisions demonstrate that a lenient approach can be taken in relation to even the most serious of breaches of the SIS Act. Common features of both cases are that the taxpayers fully cooperated with Australian Taxation Office (ATO) investigations, showed remorse, agreed to a set of facts and penalties to be applied before the hearing, and were represented at the hearing. It is hoped that a similarly lenient approach will be taken by the ATO in its approach to the new SMSF penalty regime that applied from 1 July 2014.