A superannuation lawyer has warned practitioners to be mindful of how broadly the financial assistance provisions contained in the Superannuation Industry (Supervision) (SIS) Act can be applied, which in turn could present compliance issues for SMSF trustees.
Specifically, section 65 of the SIS Act states trustees cannot lend money of the fund to members or relatives nor give “any other financial assistance using the resources of the fund”.
“That ‘any other financial assistance’ [notion] is actually quite a wide concept and we do have lots of cases that have looked at financial assistance provided by SMSFs not to the members, but to their family trusts or their unit trusts,” Cooper Grace Ward partner Scott Hay-Bartlem told delegates at the SMSF Association National Conference 2025 hosted in Melbourne recently.
“It doesn’t have to be a direct benefit, it can be an indirect benefit. The cases are clear.”
To illustrate his point, Hay-Bartlem referred to the Administrative Appeals Tribunal (AAT) case of Merchant v Commissioner of Taxation.
The circumstances here saw the plaintiff encountering a compliance issue regarding section 65 of the SIS Act because he used his SMSF to purchase Billabong (BBG) shares at market value from a family unit trust to create a capital loss for the unit trust that would offset a substantial capital gain materialised by that investment vehicle.
“[In the original ruling], the ATO said section 65 [of the SIS Act] clearly prohibits indirect financial assistance using the resources of the fund through something like a family trust or some other interposed entity. In buying the shares, there was indirect financial assistance because Gordon [the trustee] and his children are all beneficiaries of that trust so his family is getting benefits through the trust,” Hay-Bartlem noted.
“That massive capital loss generated for the family trust really does [represent] a big benefit. Wouldn’t you love to have a $10 million loss in your family trust? Wouldn’t it be useful.
“And the AAT said Gordon was the beneficiary of the trust and therefore he got a benefit because of the BBG share sale to the SMSF. The prohibition is not limited to direct financial assistance and includes indirect financial assistance through a family trust.
“That’s probably one of the really important learnings [from this situation] and there are other cases that say that too.”
