In the recent decision in Coronica and Commissioner of Taxation (Taxation) [2021] AATA 1225, the Administrative Appeals Tribunal has set aside the disqualification of Giuseppe Coronica as an SMSF trustee.
The AAT has now ruled that it will set aside the disqualification of Mr Coronica and he will instead undergo an undertaking order.
Mr Coronica will not act as a trustee of any superannuation fund other than the G Coronica Superannuation Fund (the fund), of which Mr Coronica will become and remain the sole member.
All financial activities of the fund will also be transacted through the fund’s own bank account rather than those of its member(s) and/or related parties.
The AAT stated the fund will appoint and continue to engage an independent accountant and tax agent to attend to the fund’s accounting and taxation obligations. It will also appoint and continue to engage an independent auditor bound by the accounting profession’s ethical standards on independence to attend to the fund’s annual audit obligations.
The fund will also engage a firm of lawyers and licensed investment adviser to advise that all existing and (prior to them being entered into) new investments, other than investments in listed securities, comply with the act and the set undertakings.
“All such advice will be provided by the trustee(s) to the independent auditor in a timely manner,” the AAT said.
“This requirement applies to each of the five income years following the execution of this undertaking, unless an auditor contravention report is lodged with the ATO in respect of one or more of those income years. Where that occurs, the term of the undertaking may be extended.”
On 1 April, the AAT had ruled to affirm the non-compliance of Mr Coronica’s SMSF, but reserved its decision in relation to the disqualification.
The tribunal had found that the exercise of the discretion in the disqualification was appropriate due to the size of the monetary penalty, as a consequence of the non-compliance decision, the attempted rectification of the breaches and Mr Coronica’s commitment to keep his personal affairs and the fund’s compliance separate since 2014. This along with the willingness to provide appropriate undertakings and the assessment of a highly unlikely future compliance risk.
The AAT also questioned what the form should be of the “appropriate undertakings offered” and that there were governance arrangements that needed strengthening.
A lengthy and complex case decision involving non-compliance which covered many interesting issues, DBA Lawyers had said that the case provided important considerations for advisers regarding valuations and related-party acquisitions.
“There can be some very limited circumstances where SMSFs can acquire shares in related private companies, even from related parties,” DBA Lawyers Bryce Figot and Daniel Butler said.
“The ATO alluded to this in Taxpayer Alert TA 2012/7 where the ATO states ‘the general prohibition on SMSFs acquiring assets from a related party does not apply where the SMSF’s investment is in a unit trust which complies with those requirements [i.e. the requirements in Div 13.3A of the Superannuation Industry (Supervision) Regulations 1994 (Cth)]’.
“If engaging in such a course of action, in valuing the shares, it appears that there is prudence in adjusting the value of the shares for any tax effect that the purchasing SMSF is likely to experience.
“However, there is an important warning. Extreme care needs to be taken when acquiring any assets — particularly shares in private companies — from a related party.”
In Sladen Legal’s blog, senior associate Philippa Briglia had also stated that this case reinforces the serious consequences that can occur as a result of breaching the SIS Act, and that the ATO (and the courts) are not afraid to issue serious penalties.
“As such, SMSF trustees must ensure that they conduct their affairs in a complying manner, especially in relation to related-party dealings. This particularly applies to accounting, financial planning and legal professionals who will often be held to a higher standard,” Ms Briglia said.
