A recent Administrative Appeals Tribunal (AAT) case in which the banning of an SMSF trustee for a one-off mistake was overturned could be called upon as a precedent in similar situations, despite efforts by the ATO to downplay the significance of the decision, two superannuation lawyers have claimed.
Sladen Legal principal Phil Broderick and senior associate Terence Wong said the regulator’s response to the AAT’s decision in Merchant and Commissioner of Taxation [2024] to overturn the banning of Gordon Merchant to act as an SMSF trustee was set out in a recently released decision impact statement (DIS) in which “the ATO reads down its loss”.
Broderick and Wong noted that in paragraph 35 of the DIS, the ATO stated Merchant’s breaches of the SMSF investment strategy requirement, the sole purpose test and the prohibition against providing financial assistance to a member of the fund were sufficient grounds to ban him from acting as a trustee.
However, the AAT found Merchant had relied on independent advice, his actions were lawful at the time of his fund’s transactions and he was found to be a fit and proper person by the ATO.
The two lawyers also highlighted that in the following paragraphs, the regulator added: “We accept that, when considering the tribunal’s holistic consideration of all the particular facts as they applied to the applicant, the decision that the applicant was unlikely to be a future compliance risk and setting aside the disqualification of the applicant was reasonably available to the tribunal on the facts before it.
“As each case must to be decided on its particular circumstances, we take the view that this decision has limited broader application beyond the ‘peculiar circumstances of this case’.”
Broderick and Wong pointed to the fact the same disqualification factors resulted in a different outcome before the AAT in the case of Coronica and Commissioner of Taxation [2024].
In that instance, the trustee also claimed he posed no future compliance risk, but the ban was not overturned as the tribunal ruled Coronica’s breaches were more numerous and deliberate, having taken place over many years, and he did not rely on external advice.
This case was referenced in the DIS to emphasise the unusual nature of the Merchant case, with the lawyers noting it was more likely that case would be called upon again than the Coronica case.
“It could be said that the reference to the Coronica case in the DIS has ‘limited broader appeal’ when considering, the reasonably common circumstances, where taxpayers are fit and proper persons but make a one-off mistake,” they said.
“Quite rightly, the tribunal in Merchant found that such situations should not result in disqualification. That is, it could also be said that the Merchant decision could have, and no doubt will have, a broader appeal in defence of SMSF trustee/directors in analogous situations of Merchant.”
