1. The Respondent contended that the statutory preconditions having been met, disqualification was the correct and preferable decision because:
   • in total there were 244 individual breaches over a 6 year period relating to multiple provisions of the SISA;
   • as a result of the withdrawals, almost the entirety of the SMFS assets were depleted across multiple income years and this exposed the SMSF to financial risk that there would be no provision for retirement;
   • the number, nature and seriousness of the contraventions speak to the Applicants' risk to future compliance, particularly due to the inference that the Applicants knowingly and repeatedly diminished the SMSF's retirement benefits for a personal, present day gain. The restoration of funds to those accounts does not remediate concern that the Applicants are likely to commit the same contravention in the future; and
   • the Applicant's submissions have been focused on the consequences of disqualification rather than expressing remorse or accepting responsibility for the breaches.

Section 65 - Lending to members of regulated fund prohibited

(1) A trustee or an investment manager of a regulated superannuation fund must not: > > (a) lend money of the fund to: > > (i) a member of the fund; or > > (ii) a relative of a member of the fund; or > > (b) give any other financial assistance using the resources of the fund to: > > (i) a member of the fund; or > > (ii) a relative of a member of the fund.

2. There are a couple of exceptions to the above prohibition, which are set out in ss(2) and (3), and which are not relevant in this case. The prohibition is strictly applied even where the loan is repaid shortly after the advance of any funds.[9]
3. The Applicants admit Ms Alicer made the withdrawals and the funds were intended to be loans to enable Ms Alicer to meet various expenses including the mortgage and renovation costs. Section 65(1) of the SISA was contravened by the Fund.

1. An "in-house asset" of a superannuation fund includes an asset of the fund that is a loan to, or an investment in, a related party of the fund or an investment in a related trust of the fund.[10] A related party of a superannuation fund includes a member.[11]
2. The in-house asset rules limit the proportion of "in-house assets" that a regulated superannuation fund may acquire to no more than a market value ratio of 5%[12] If the market value ratio of a fund's in-house assets exceeds 5%, a trustee must not acquire an in-house asset[13] If the ratio is below 5%, a trustee is prohibited from acquiring an in-house asset if the acquisition would result in the fund's in-house assets exceeding 5%.[14]
3. If the 5% market value ratio limit is breached, the trustee must make a written plan and ensure the steps in the plan are carried out to reduce the level of the fund's in house assets to a market value ratio of 5% or below before the end of the following year of income.[15] The requirements of the plan are set out in ss 83(3)-(6) of the SISA.
4. Each trustee of a regulated superannuation fund must take all reasonable steps to ensure that the fund complies with the in-house assets rules[16] This section is also a civil penalty provision as defined by s 193. Part 21 of SISA provides for civil and criminal consequences of contravening or of being involved in such a contravention.[17]
5. The loans to Ms Alicer arising from the withdrawals was an in-house asset.
6. The following table provides the market value ratio at 30 June for the 2017 to 2023 income years:

1. The in-house assets exceeded 5% in the 2018 income year and remained over 5% in all the subsequent income years.
2. Further, the in-house asset ratio exceeded 5% on 18 January 2016 and the Fund acquired further in-house assets on 26 January 2016 by lending more money to Ms Alicer. Similarly, the in-house asset ratio exceeded 5% on 21 July 2017 and the Fund continued to acquire further in- house assets which caused the in-house asset ratio to exceed 5%.
3. The following table shows the number of times the contravention of subsection 84(1) of the SISA occurred in each income year:

1. Section 62(1) of the SISA provides that each trustee must ensure that the fund is maintained solely for one or more of the core or ancillary purposes prescribed under the section. The specified purposes essentially relate to the provision of retirement or death benefits for fund members.
2. Section 62(1) is a civil penalty provision. Part 21 of SISA provides for civil and criminal consequences of contravening or of being involved in such a contravention.[18]
3. The withdrawals by Ms Alicer which were applied to personal expenses involved the trustees contravening s 62(1) of the SISA because the Fund was not being maintained for the sole purposes prescribed in the SISA.

Section 109 - Investments to be made on arm's length basis

1. Section 109 of the SISA is a two-limb test where subsection 109(1) allows trustees or investment managers to have dealings with other parties so long as such deals are at arm's length. If the dealings are not at arms-length, subsection 109(1A) ensures the dealings must be carried on in the same manner as if they were at arm's length.
2. A way to ensure the commerciality and integrity of non-arm's lengths dealings is to

contemporaneously document the terms and conditions of the loan, including when repayments are due, when interest has accrued, and any consequences if a loan is defaulted on.

1. Although interest was charged on the loans at a reasonable rate, there were no clear terms and conditions and repayments were not made on a regular basis in breach of section 109 of the SISA.

1. Section 35D of the SISA requires the trustees during a year of income, within the reporting period or another time specified by the Respondent to provide a return. The Applicants failed to provide annual trust returns for the 2017, 2020, 2021, 2022 or 2023 within the time prescribed.

WERE THE STATUTORY GROUNDS FOR DISQUALIFYING THE APPLICANTS ESTABLISHED?

1. There can be no doubt that there were numerous contraventions of the SISA in the 2017 to 2023 income years for the purposes of s 126A(1) of the SISA. This is also accepted by the Applicants.

SHOULD THE TRIBUNAL EXERCISE THE DISCRETION TO DISQUALIFY THE APPLICANTS AS A TRUSTEE OF A SUPERANNUATION FUND?

1. Given, the Tribunal has found that the Applicant's have contravened the SISA Act, it must now consider whether in accordance with s 126A(2) of the SISA, the nature, seriousness or number of contraventions provide grounds for disqualification of the Applicants as trustees of a superannuation fund.

1. There were 244 individual contraventions across multiple provisions within the SISA. Although the contraventions span more than one income year, they were primarily derived from withdrawals made during the 2017 income year. While a number of the breaches arose from related transactions, the volume of non-compliances was of itself significant.

1. I accept that the trustees conduct should be considered in the context of the breakdown of the Applicants relationship in 2017 and the financial and personal consequences that followed. The Applicants submit that those circumstances explain the contraventions and provide reassurance as to future compliance.
2. However, the evidentiary basis for those submissions is limited. Ms Alicer and Mr Ramos did not to provide a witness statement or give oral evidence in the proceeding. The only evidence directed to the extenuating circumstances was the letters provided by Ms Alicer and Mr Ramos during the audit process. While those letters referred to the mitigating circumstances and contained expressions of remorse, those matters were not explored at the hearing or tested in evidence. While I draw no adverse inference from that decision, the Tribunal must determine the matter on the material properly before it. Untested assertions or submissions cannot be elevated into findings of fact.
3. The practical effect of the withdrawals cannot be understated. Between March 2018 and July 2022, the Funds bank account had a balance of less than $1500. This was not a case involving isolated or minor withdrawals where the Fund remained substantially intact. For a prolonged period of time there were virtually no funds available. The impact on the Fund was profound and goes directly to the seriousness of the contraventions.
4. The Applicants contend breakdown of the marriage and Mr Ramos leaving the family home in May 2017, and the financial pressure placed on Ms Alicer was a catalyst for the withdrawals. Accepting that those events were distressing and created financial insecurity, they do not explain the withdrawals that predated Mr Ramos leaving the family home. Further, to the extent that the loans were advanced to meet the costs of home renovations this reflects a discretionary spending and sits uneasily with the preservation objective that underpins the superannuation regime.
5. The Tribunal acknowledges and accepts the separation, the financial pressures that followed, family commitments and the broader uncertainty associated with Covid were genuinely difficult experiences for Ms Alicer or Mr Ramos. Financial hardship, while stressful and burdensome, is unfortunately common. The superannuation regime is designed to operate notwithstanding such pressures. If trustees were permitted to access a superannuation funds assets whenever confronted with financial difficulty, the integrity of the scheme would be undermined. Individuals will from time to time experience hardship, but this of itself does not permit trustees to use superannuation funds as a short term financial resource in response to such events.
6. The Tribunal notes that during the period of financial hardship, Ms Alicer held an interest in another asset, albeit jointly with another family member. While the joint ownership may have made access to that asset more complex, it did not render it inaccessible. The existence of that asset undermines the inference that the loans from Jiskt were a financial necessity of last resort. The evidence suggests the assets of the Fund were utilised when alternative sources of capital were available.
7. The Applicants submit the Fund has now been fully restored and is in a stronger financial position than ever. While repayment is relevant, that submission must be approached with caution. The present financial position of the Fund is only known with the benefit of hindsight. At the time of the withdrawals, there was no certainty as to when, or if, the monies would be restored. The conduct exposed the Fund to a real risk of permanent depletion. A contravention does not lose its seriousness because subsequent events proved favourable.
8. The Applicants emphasised that the withdrawals were treated as loans and were ultimately repaid with interest. However, for a significant period of time, no repayments were made. Although interest was imposed, the absence of regular payments, demand for payment or enforcement action suggests the arrangement was not genuinely commercial in nature and the money was available for personal use without the ordinary discipline associated with an arms- length dealing.
9. The Applicants submitted their lack of financial sophistication and ignorance of the obligations associated with acting as a trustee of a SMSF should also be considered as a mitigating factor. I accept the Applicants may not possess specialist financial expertise and did not fully appreciate the intricacies of the role of being trustee before establishing the Fund. However, being a trustee carries significant statutory responsibilities and the regulatory regime is strict and prescriptive. Individuals who chose to assume the role of trustee ,also agree to undertake the corresponding obligation to inform themselves of those responsibilities and to ensure compliance. A lack of financial sophistication does not displace those obligations, nor does it excuse serious contraventions.
10. There are also multiple breaches relating the failure to lodge returns of several years. It was suggested that difficulties navigating crypto currency statements contributed to these failures. Even if I accept this to be the case, such difficulties do not relieve trustees of their statutory obligations. Reasonable steps must be taken. The obligation to lodge returns in a timely manner is an important aspect of the regulatory framework. Repeated non-compliance reflects more than mere administrative oversight.

1. The Applicant's letters contain a brief expression of remorse and suggest that the current process has impressed upon them the seriousness of the obligations. While the Tribunal does not doubt that the process has been challenging for the Applicants, the protective purpose of the of the disqualification power requires more than a mere assurance that the lesson has been learned. It requires a proper evidentiary basis upon which the Tribunal can be satisfied that future compliance can be confidently expected. In circumstances where the past conduct involved extensive contraventions, the depletion of the Fund and the non-compliance with basic reporting obligations, where there is no evidence addressing reform or changes made to ensure compliance, those expressions of regret, remorse and future compliance are necessarily limited.

1. The contraventions were numerous and significant. They involved key prohibitions in the SISA and ongoing operational matters. The contraventions were serious viewed in the context of the regulatory regime for superannuation funds. The seriousness of the contraventions is also underscored by the fact that some contraventions may result in criminal offences.
2. The contraventions resulted in the depletion of the Fund. They involve the use of preserved retirement savings for personal purposes and were not accompanied by evidence demonstrating genuine commercial discipline in the loan arrangements. While the explanatory events provide context, they do not adequately mitigate the seriousness of the conduct. Some, but limited weight can be given to the assertions of remorse and reform. Having regard to the number, nature and seriousness of the contraventions, grounds for disqualification have been established.

1. The Commissioner has a discretionary power to remit penalties. Whilst the discretion is framed without limitation, the exercise of that discretion is guided by Practice Statement Law Administration 2023/ 3 'Self-managed superannuation superfunds - a_dministrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993_ (PSLA 2023/3).
2. The Commissioner is required, in accordance with PSLA 2023/3, to consider the following principles in deciding whether to remit a penalty[19]:
   • the purpose of the penalty provision, which is to encourage taxpayers to take reasonable to take reasonable care and complying with their tax obligations;
   • the trustee behaviour and surrounding circumstances;
   • the seriousness of the contravention;
   • whether multiple provisions have been breached and whether a culminative penalty is defensible and proper in the circumstances; and
   • whether the penalty results in am unintended or unjust result.
3. There has already been a significant remission in the penalty by the Commissioner from $1,420,000 to $9,864 on account of the mitigating factors and the cumulative impact of the penalties. The Applicant's, however, contend further remission is justified given the financial burden on them in the current financial circumstances. And the circumstances occurred in igoca of the laws and where the loan the loans were always intended to be repaid.
4. The PSLA 2012/5 does not include the financial position of the trustee as a relevant consideration in determining whether remission of the penalty is appropriate. A clear distinction is drawn between the imposition of penalties, which is directed to matters relevant to the blameworthiness of the conduct, and the recovery of those liabilities which may involve consideration of broader or different considerations.
5. In any event, even if I were persuaded those matters were relevant in the exercise of the remission discretion, there is no evidence before me in respect of the current financial position of the Applicants.
6. At the forefront of my mind is that the exercise of the remission discretion must be consistent with the purpose of the penalty regime. I have found the Applicant's conduct to be serious. Full remission would be inconsistent with the purpose of the legislative regime.

1. Having regard to the evidence, I am satisfied:
   • In respect of the Disqualification Decision, the Applicants were in breach of the SISA and having regard to the number nature and seriousness of the contraventions, disqualification is appropriate. The Respondent's decision is therefore affirmed; and
   • In respect of the Penalty Decision, there is no basis upon which the discretion to remit the shortfall penalties should be exercised any further. The Applicants have failed to discharge their onus of proving the Penalty Assessment are excessive and the Commissioner's objection decision is therefore affirmed.

Litigation and Legal Services, Australian Taxation Office

s65 SISA

s84 SISA

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s84 SISA

[1] SISA, s126A(4)

[2] Ibid at s126A(6)

[3] Ibid s126K

[4] [2022] FCA 27 at [15]

[5] Practice Statement Law Administration 2006/ 17 self-managed superannuation funds - disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund at paragraph 6

[6] See Goulopoulos and Commissioner of Taxation (Goulopoulos) [2022] AATA 2540 where $665,990.86 was withdrawn to purchase a residence and Mercedes Benz_; Coronica and Commissioner of Taxation_ (Coronica) [2021] AATA 745 where the Applicant withdrew $400,00 to meet personal and business expenses and Brooks and Commissioner of Taxation (Brooks) [2019] AATA 1236 where the Applicant withdrew $257,796

[7] In Goulopoulos the Applicant was a successful business man, and in Coronica was an accountant and tax agent. See also WZWK and Commissioner or Taxation [2023] AATA 872 where the Applicant was an accountant and registered SMSF auditor.

[9] Fitzmaurice and Federal Commissioner of Taxation (2019) 110 ATR 440 at [42].

[10] SISA, s71(1)

[11] Ibid s 10(1)

[12] Ibid s 83

[13] Ibid s 83(2)

[14] Ibid s83(3)

[15] Ibis s 82(2)

[16] SISA, s 84(1)

[17] Ibid s 84(2)

[18] Ibid, s62(2)

[19] Practice Statement Law Administration 2012/5 Self-managed superannuation superfunds - a_dministrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 at paragraph 4_