leaving a balance of $69,497.64 in the 2008 year of income.

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The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the decision in this application as follows:

But in the years that followed, he continued to withdraw money from the fund: a total of $154,847.64 was accessed over the 2003-2010 financial years. $85,350 was repaid, leaving a balance of $69,947.64.

But in the years that followed, he continued to withdraw money from the fund: a total of $154,847.64 was accessed over the 2003-2008 financial years. $85,350 was repaid, leaving a balance of $69,947.64 in the 2008 year of income. Mr Peach then accessed a further $6,463.61 in the 2009 year of income and $30,433.57 in the 2010 year of income.

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[2012] AATA 781

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TAXATION - self-managed superannuation funds - access to funds prior to retiring age - conditions for release - severe financial hardship - compassionate grounds - discretion to exclude amounts from assessable income - objection decision affirmed.

Income Tax Assessment Act 1997 (Cth) s304-10

Superannuation Industry (Supervision) Act 1993 (Cth) s31

Superannuation Industry (Supervision) Regulations 1994 (Cth). rr 6.01 and 6.19A

1. Trevor Peach accessed funds in his self-managed superannuation fund in the 2008, 2009 and 2010 financial years. The Commissioner included the amounts in Mr Peach's assessable income in those years. Mr Peach has objected unsuccessfully and now wishes to review the Commissioner's decision.
2. The Commissioner says the amounts accessed by Mr Peach are included in his assessable income by reason of s 304-10(1) of the Income Tax Assessment Act 1997 (ITAA97) because the payments were made in breach of the Superannuation Industry (Supervision) Act 1992 and regulations. I will need to consider whether that is so. In particular, I must determine whether Mr Peach met any of the conditions for release that are referred to in Schedule One of the Superannuation Industry (Supervision) Regulations 1994.
3. The Commissioner also has the power in s 304-10(4) to exclude the amounts Mr Peach accessed from the superannuation funds in his assessable income for the relevant years. The discretion can be exercised if the Commissioner is satisfied it would be unreasonable in all the circumstances to include the amounts in the taxpayer's assessable income.
4. Mr Peach does not satisfy a condition of release, and I am not persuaded the discretion in s 304-10(4) should be exercised in his favour. That means the objection decision under review must be affirmed and the money he accessed from the fund is properly included in his assessable income in the relevant years. I explain my reasons below.

1. Mr Peach established a self-managed super fund in 1999. He is the only member of the fund. The trustee is Housing Asia Pacific Pty Ltd. Mr Peach is the sole director and shareholder of that company. Contributions were accepted into the fund from Mr Peach's employer. He also made personal contributions.
2. The problems that led to these proceedings really began in 2003. The trustee of the fund entered into an agreement with a woman who subsequently became Mr Peach's domestic partner. They agreed to build a yoga studio onto his home. She intended to conduct a yoga business from the premises. Mr Peach said he thought the loan was a good idea because it would improve the value of the house, which was the fund's principal asset. The fund advanced$120,000 for this purpose. Unfortunately, it became clear after an audit that the loan was not appropriate under the rules and Mr Peach was required to repay the money. But in the years that followed, he continued to withdraw money from the fund: a total of $154,847.64 was accessed over the 2003-2010 financial years. $85,350 was repaid, leaving a balance of $69,947.64.
3. The focus in these proceedings is on what occurred during the 2008-2010 financial years. Mr Peach gave evidence that he was effectively forced out of his job as the head of the Australian Affordable Housing Association in September 2008. He said he was without an income in the months that followed. He wanted to access his superannuation funds. His accountant prepared a letter for him to sign dated 1 February 2009 addressed to the trustee of the fund declaring he had "fully retired from the workforce with no intention of ever working again". Under cross-examination, Mr Peach agreed he did not sign the document on 1 February. It was signed much later, although it is not clear when.
4. In the meantime, notwithstanding the intention to retire referred to in the letter prepared by the accountants, Mr Peach entered into a consulting agreement in May 2009. He began receiving a regular retainer in respect of his work.
5. Mr Peach agreed under cross-examination that he never intended to retire, and still does not see himself retiring. I accept he did not intend to cease undertaking paying work throughout the years of income in question, as evidenced by the fact he continued to work in each of those years because he needed to earn an income. I note he approached Centrelink for assistance at one point but he was never in receipt of any benefits.

WOULD THE FUNDS ACCESSED BY THE TAXPAYER BE COUNTED AS PART OF HIS ASSESSABLE INCOME PURSUANT TO SECTION 304-10(1) IN THE ABSENCE OF THE EXERCISE OF THE DISCRETION?

1. Monies paid into a superannuation fund are taxed at concessional rates to reflect the fact they are to be used for retirement purposes when the taxpayer reaches an appropriate age. But the concessions are only available where the fund is conducted according to the rules in the Superannuation Industry (Supervision) Act 1992 ("the SIS Act") and the regulations. Those rules cover, amongst other things, the circumstances in which money in the fund can be accessed: see s 304-10(1)(b) ITAA97; see also s 31 of the SIS Act. If the monies drawn out of the fund are not drawn out in accordance with the prescribed payment standards, or if the fund does not otherwise comply with the rules, then the concessional treatment may not be available and the money will be taxed in the ordinary way.
2. Part 6 of the Regulations sets out the prescribed payment standards. In summary, the payment standards say that cash in the fund can be accessed by a member if the member first satisfies a condition of release. The conditions of release are set out in column 2 of Schedule one to the Regulations. There are three conditions of release that might be relevant in this case.
3. The first condition of release that arises for consideration is in the event of retirement. The expression "retirement" is defined in regulation 6.01(7). It describes a situation where a person who is less than 60 ceases to be employed or, in the case of a person over 60, the person was working and in either case:

the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time basis...

1. There is no evidence to suggest the trustee was reasonably satisfied that the taxpayer never intended to again become gainfully employed before the funds were accessed. The letter prepared by the accountants dated 1 February 2009 is unlikely to be enough on its own to enable the trustee to be reasonably satisfied but it is unclear in any event when that letter was prepared or considered. Given Mr Peach actually continued working, it is unlikely there was any other evidence that was forthcoming that would have enabled the trustee to form a view about retirement at any point during the years of income. It follows Mr Peach could not satisfy the first condition of release.
2. The second condition of release is available where a person is in severe financial hardship. Mr Peach cannot meet this condition of release because regulation 6.01(5) requires the trustee to sight evidence provided by a Commonwealth government agency (most obviously Centrelink) that the taxpayer was in receipt of Commonwealth income support payments for a continuous period prior to the time the approach to the trustee was made. The trustee could not have seen that evidence because Mr Peach did not receive any benefits.
3. The third condition of release is where a taxpayer seeks release on compassionate grounds identified in regulation 6.19A. The circumstances which might be recognised as grounds for compassion are narrowly drawn. None of them apply to Mr Peach. There was a suggestion the payments were made in order to avoid action being taken against his home, but I am not satisfied that argument was justified on the scant evidence which did not suggest the imminent possibility of foreclosure or the exercise of a power of sale. In any event, he was required to approach the regulator for approval before the funds could be released. He did not do that.
4. In those circumstances, the answer to the question posed above must be "Yes: the funds accessed would be counted as part of the taxpayer's assessable income given the failure to comply with the requirements of the SIS Act and regulations, with particular reference to the payment standards."

SHOULD THE DISCRETION IN SECTION 304-10(4) BE EXERCISED IN THE TAXPAYER'S FAVOUR?

1. The discretion to disregard the monies drawn from the fund notwithstanding the operation of s 304-10(1) is found in s 304-10(4). The discretion is available for exercise where the Commissioner considers it would be unreasonable to include the amounts in the taxpayer's assessable income. In reaching that view, the Commissioner may have regard to the nature of the fund and any other matter he considers relevant.
2. The taxpayer effectively treated the fund which was established to provide for his retirement as a bank account that he used to fund his daily activities before he retired. That is not what the fund was there for. The taxpayer was capable of working, and continued to do so. He was in some financial difficulty after he lost his job, to be sure, but he did not exhaust the other alternatives (including Centrelink benefits which he asked about but did not pursue) that were available to him before he dipped into his retirement savings that had been the subject of concessional tax treatment. He continued to access funds even after he resumed consulting work.
3. In all the circumstances, I am not satisfied the discretion should be exercised in the taxpayer's favour.

I certify that the preceding 20 (twenty) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

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