The ATO has confirmed it has no discretionary power it can apply to breaches of the Superannuation Industry (Supervision) (SIS) Act and as such cannot provide compliance relief where an SMSF has provided a prohibited loan to fund members or relatives of these individuals.
“Unfortunately we don’t have any discretion to disregard or overlook the SIS Act legislation so if those things occur, we can’t overlook them,” ATO assistant commissioner Alister Boyes told attendees of The Tax Institute Super Intensive online event today.
Boyes also pointed out a breach of SIS Act section 65 cannot be remedied simply by paying back the loan, including an interest component.
“While getting the money back into the super system is important, it doesn’t negate the breach by the actual loan,” he explained.
He indicated some leniency can be applied where a genuine mistake has been made where the SMSF paid money into the wrong account or to the wrong party.
“In this case the fund would have a legal right to recover it and providing it is recovered promptly, it would not be considered IEA (illegal early access) and therefore not a reportable breach,” he said.
Further, he noted the issuing of a prohibited loan would likely lead to more than just a breach of SIS Act section 65.
“Such [actions] can breach the sole purpose test under [SIS Act] section 62. They may also represent a breach of payment standards in [SIS] Regulation 6.17, as well as section 65 breaches, which prohibit the provision of financial assistance to members.”
He also warned the provision of prohibited loans attracts severe penalties for SMSF trustees.
“It’s important to note breaches of section 65 carry with it an administrative penalty of 60 penalty units, which [amounts to] $19, 800,” he said.
As such, he provided a clear message to trustees about the issue.
“The key message to trustees is pretty straightforward on this – do not access or lend fund assets in the first place. This is the only way to avoid the breach,” he noted.
