The Administrative Review Tribunal (ART) has ruled a couple who took money from their SMSF via illegal early access and without checking advice provided to them will have to pay income tax on those sums, but will escape administrative penalties for their actions due to the additional tax burden imposed.
The ART made the decision on 25 November in the case of Santavas and Commissioner of Taxation [2025] ARTA 2515 in which Harry and Vicki Santavas claimed they should not be liable for any income tax or penalties following nine withdrawals from their fund to pay off a building development.
According to the case decision, the couple set up their fund when the builder of a property development of two townhouses went into liquidation and did not complete the work, causing them to lose about $300,000.
They received advice from a tax agent who suggested they establish an SMSF to access their superannuation to complete the work on the townhouses, and after doing so rolled over $380,000 from their other super funds.
The ART noted at the time of the rollovers, between February and April 2019, neither of them were at preservation age or met any other condition of release, or when the funds were withdrawn from the SMSF to complete the property development.
Additionally, the tribunal found Harry Santavas did not read any material provided to him by the tax agent, who provided very limited written advice and carried out most of the tasks required to establish an SMSF.
When contacted by the ATO commissioner after they attempted to close the fund, they denied the funds were withdrawn or ever in the SMSF or used for property development.
These statements were later corrected with the addition the initial advice provided was negligent and the couple had relied on it in good faith, but the ATO commissioner disqualified both of them, issued amended income tax assessments and imposed administrative penalties.
In ruling on their appeal against the tax and penalties, ART general member Joanne Dunne said: “It is well known in the Australian community that superannuation funds are given tax concessions because the funds cannot be accessed until retirement.
“In terms of the nature of the fund, what we have in this case is the SMSF that was set up solely for the purpose of accessing the superannuation funds improperly and now has no substance. It was used as a tool to avoid the superannuation rules. This counts against the exercise of the discretion in this case.”
Dunne added that as SMSF trustees they had a responsibility to be aware of what they were entering into.
“For the applicants not to read anything they were provided and to rely passively on advice which they could not articulate properly does not persuade me it is unreasonable for taxation to be imposed under section 304-10 [of the Income Tax Assessment Act (ITAA) 1997],” she said.
“By merely signing documents without reading them and without making any efforts to understand them, the applicants have acted in a manner that weighs against exercising the discretion in subsection 304-10(4) of the ITAA 1997.”
However, she noted the tax penalty in this case was sufficient and ruled the administrative penalties should be waived.
“The case law supports the conclusion that in circumstances where the imposition of tax under section 304-10 is substantial and a significant deterrent, there is no additional purpose in terms of deterrence to impose penalties,” she said.
“In my view, the consequences in this case are significant and the applicants will not contravene the rules again. This meets the purpose of the penalty regime and is a factor in favour of full remission.”
