A couple has lost an appeal against disqualification from running their SMSF, which called on the Administrative Appeals Tribunal to rule on what constitutes “severe financial hardship”.
Louise Fitzmaurice and her husband Antony Bullock are members of a self-managed fund, Alisar Superannuation Fund. They are also directors of the corporate trustee, Alisar Pty Ltd. The body corporate also acts as trustee for a family discretionary trust, the Canada Trust.
The main asset of the SMSF is a property at Dundee Beach, west of Darwin in the Northern Territory. The corporate trustee of the SMSF had a lease agreement with the discretionary trust to use the property for short-term accommodation cabins.
In 2012 a storm caused significant damage to the property and the trustees used money from the SMSF to engage contractors to repair the cabins. More than $8000 was transferred from the SMSF into a personal account from which payments were made to the contractors. The money was later repaid.
Later the same year, the couple’s family home was destroyed by fire. A total of $22,174 was withdrawn from the SMSF as “emergency funds” and used to pay for accommodation and to replace a vehicle. A further $4900 was used to purchase a car for their daughter.
In all, there were $38,678 of withdrawals from the SMSF between September 2012 and January 2013. The SMSF was later reimbursed out of insurance payments.
In 2016, the ATO audited the SMSF after receiving an auditor contravention report. For the 2012/13 financial year. The ATO disqualified Fitzmaurice and Bullock for the following contraventions:
- lending money to a member and breaching the sole purpose test;
- early release of benefits where a member did not satisfy the “severe financial hardship” test;
- failure to maintain investments as arm’s length;
- late lodgement of and failure to lodge SMSF annual returns;
- failure to keep a current market valuation of the asset;
- other record keeping failures.
Fitzmaurice took her case to the AAT, arguing that the money paid out of the SMSF was allowed because she was in severe hardship, and that the $8000 withdrawal was a bona fide expense of the fund.
She said their accountant had advised them it was possible to access funds from the SMSF in the circumstances.
The AAT upheld the ATO’s ruling. It said the payments from the SMSF were loans and were an improper use of funds, breaching the sole purpose test.
It also found that the lease agreement with the discretionary family trust was not being maintained at arm’s length. There was no record of rental payments to the SMSF in 2012/13 or 2013/14.
It found that the payments did not meet the rules for a severe financial hardship condition of release, which specify that a maximum of $10,000 can be paid in a 12-month period and that Commonwealth income support payments must be received for a period of 26 weeks before funds can be released.
The AAT said there was no suggestion of dishonesty but it was concerned that Fitzmaurice thought it was OK to use SMSF funds to deal with family problems.
The AAT ruling says: “There is no doubt that the natural disasters were very unfortunate and had a significant detrimental impact upon the applicant and her family. However, it is of concern that the applicant in response to the disasters saw fit to utilise the money in the superannuation fund for her and her family’s convenience.
“This suggests that the applicant has no understanding of the purpose for which the superannuation fund was maintained.
“The applicant treated the superannuation fund as a resource that could be accessed so as to overcome the short-term monetary difficulties that arose from the storm and fire. This was in fact unnecessary given that there were insurance policies in place to cover the expenses associated with the storm and fire.”