A specialist superannuation lawyer has confirmed trustee disqualification can be successfully challenged in the right circumstances and the presence of financial advice is a factor that will help produce a favourable result.
Cooper Grace Ward partner Scott Hay-Bartlem noted this was one of the key learnings from the Merchant v Commissioner of Taxation case and the subsequent hearing before the Administrative Appeals Tribunal (AAT).
The case stemmed from the fact Merchant’s SMSF acquired shares from his family’s unit trust, which created a capital loss for the unit trust that was able to be offset against a significant capital gain, and it was deemed the transaction, among other things, was only executed for this tax advantage and not for the benefit of the super fund and its members, meaning the sole purpose test had been breached.
From this the ATO disqualified Merchant as an SMSF trustee due to the breach and other ulterior motives behind the transaction, such as the ability to maintain ownership of the shares within the Merchant family holdings.
According to Hay-Bartlem, Merchant established the right circumstances for a successful appeal on several fronts, starting with the undertakings he gave the ATO.
“He said: ‘I will always have an independent director of the fund, I will engage a planner to provide advice at least once a year, I will review [the SMSF] at least once a year, I will make a written record [of these actions] and I will give that document to the ATO on request,’” he noted at the SMSF Association National Conference 2025 in Melbourne recently.
In addition, he pointed out the purpose of the disqualification was to protect the public – another fact Merchant was able to use in his favour.
“[Merchant said:] ‘This is just my SMSF. I’m never going to be the trustee of anybody else’s SMSF. I relied on my accountant and my accountant told me I should do this,’” he explained.
“[Plus] this whole [multifaceted] fight stems from one transaction [and not a pattern of poor trustee behaviour].”
The AAT set aside the disqualification and Hay-Bartlem recognised the fact there were not multiple compliance breaches and that Merchant received financial advice contributed significantly to the decision.
“So the learnings are you can challenge a [trustee] disqualification in the right circumstances, but you have to be careful and do it in the right way,” he said.
“[Also] one of the themes out of this case, and if you look at a whole lot of the other fights we’ve had in SMSFs, there is always a theme about the trustee getting advice as trustee of the fund about their obligations.”
The Merchant case also demonstrated how the definition of financial assistance can be applied very broadly to an SMSF.
