Regulation, SMSF

Expert status will bring heavy penalties

SMSF practitioners regulators

SMSF practitioners have been presented with a case study of what they can expect from the regulators if they intentionally breach the law.

Regulators will take a stronger approach to SMSF practitioners who flout the rules and act contrary to the law in regards to their own funds, according to a legal firm that has used a recent case of a banned auditor and accountant to highlight the situation.

DBA Lawyers senior associate Shaun Backhaus said the case of WZWK and Commissioner of Taxation (Taxation) [2023] AATA 872 handed down on 26 April highlighted that SMSF advisers, accountants and auditors will be viewed differently by the ATO and Australian Securities and Investments Commission (ASIC) if they intentionally break the law.

Backhaus said the practitioner involved in the case was a chartered accountant, tax agent and SMSF auditor who established a fund in 2010 and after ceasing employment in the same year began to draw a “non-commutable lifetime pension” from the fund at age 47.

He added that from 2011 to 2016, WZWK received $819,000 from the SMSF, which was wound up in 2018 and then audited in 2019, leading to him being referred to ASIC while also having his Tax Practitioners Board registration terminated and his professional association membership suspended.

“Whether these were pension payments or lump sums was actually not that clear nor whether he met minimum [pension payments], but that’s irrelevant because he started a pension at 47,” he said.

He added WZWK relied on the conditions of release outlined in the Superannuation Industry (Supervision) Regulations, particularly termination of employment, to receive his pension. The Administrative Appeal Tribunal (AAT) found this did not exist and that it was a complying lifetime pension for which he was ineligible due to his age.

As such, he said the pension was illegal early access, which was compounded by contraventions in the fund, including financial assistance, acquisition from a related party and breaches of the sole purpose test and operating standards, as well as auditing his own fund.

“The interesting part here is that on all his assessed returns a 50 per cent penalty was applied based on recklessness even though he [WZWK] said this shouldn’t be the case,” he said.

“The AAT said he should be held to a higher standard. He was a tax agent. He held himself out as an expert in superannuation,” he said, adding he was also disqualified from being an SMSF trustee on the same grounds.

“His disqualification by those associations also weighed heavily against him because they found he wasn’t a fit and proper person, so he can’t be a fit and proper person to manage an SMSF.

“It’s an interesting case to see exactly what not to do, but also to understand how you’ll be seen if you do something wrong. You’ll be held to a higher standard as an adviser and you can’t just make up positions that have very little basis.”

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