The decision in Deputy Commissioner of Taxation (Superannuation) v Ryan [2015] FCA1037 involves the respondents – married couple Carolyn Ryan and Joseph Ryan – who were trustees and members of the Lawryan Family Superannuation Fund between January 1999 and January 2014.
Through the income years 2009–2012, the respondents had financial difficulties which arose from the sale of a dry-cleaning business, Mr Dunn said.
As a result, they carried out several activities to meet their personal expenses, including making 20 payments (loans) to the fund members, totalling $53,133.25 and making 19 payments (loans) to the fund members, totalling $69,570.23, along with failing to prepare or carry out a plan to address the excess in-house assets of the fund that existed as at 30 June 2010.
They also made a loan to the fund members totalling $17,298.42 without authorisation of the fund’s governing rules and made 28 payments (loans) to the fund members, totalling $69,674.74, along with failing to prepare or carry out a plan to address the excess in-house assets of the fund that existed as at 30 June 2011.
Over this period some of the withdrawals were made as loans and repaid, Mr Dunn explained, but the loans were unsecured, had no interest rate and no repayment term. Also, other withdrawals were not repaid. The total net amount withdrawn was $184,364, leaving little remaining funds.
As a result of these collective actions, it was identified that several breaches of the SIS Act occurred. As Mr Dunn explained, these include:
• Section 62(1) of the SIS Act, by failing to ensure that the fund was maintained solely for one or more of the purposes prescribed in 62(1) of the act;
• Section 65(1)(a) of the SIS Act, by lending money using the resources of the fund to the members;
• Section 84 of the SIS Act, by making loans to the members which caused the market value ratio of the fund’s in-house assets to exceed 5 per cent and thereby failing to take all reasonable steps to ensure that the provisions of Division 3, Part 9 of the SIS Act were complied with in respect of the fund; and
• Section 109(1)(b) of the SIS Act, by making investments as fund trustees in circumstances where the other parties to those transactions, being the members in their personal capacities, were not dealing with each other at arm’s length in respect of each transaction and the terms and conditions of those transactions were more favourable to other parties than those which it is reasonable to expect would have applied if the trustees were dealing with those other parties at arm’s length in the same circumstances.
Ultimately, both Mr and Mrs Ryan were disqualified from being trustees of a super fund.
“After taking into account the seriousness of the contraventions, their deliberate nature, the amount of money involved, the financial position of the Ryans and their co-operation with the Commissioner, the court decided to impose a penalty of $20,000 on each of them. This penalty was to be paid in monthly instalments over three years,” said Mr Dunn.
“The decision provides a timely reminder of the potential consequences that can be instigated upon a fund entering into various related-party transactions that can quickly go from relatively small breaches to larger and more significant contraventions,” he said.
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I can’t understand the intent of the headline. Loans are simply not allowed so any loan will be illegal. The only variable will be the penalty when the illegality has been uncovered. What would be really interesting (and informative) is how the situation was uncovered. Did the auditor report it?