Bryce Figot, special counsel for DBA Lawyers, said the High Court rejected the Commissioner’s longstanding view that a company beneficiary provides financial accommodation to a trustee merely by not calling for payment of its entitlement. The ATO has accepted that the decision contradicts TD 2022/11, which will be withdrawn, and has indicated that other affected guidance will also be reviewed.
“While Bendel is a Division 7A case, its reasoning may have important implications for SMSFs with the ATO historically taking a similar approach to unpaid trust distributions owing to SMSFs (SMSFR 2009/3 Self Managed Superannuation Funds: application of the Superannuation Industry (Supervision) Act 1993 to unpaid trust distributions payable to a Self Managed Superannuation Fund),” he said.
“In SMSFR 2009/3, the ATO’s view is that an unpaid trust distribution may, depending on the circumstances, constitute financial accommodation or a loan for SIS Act purposes. Where the trust is a related party of the SMSF, this can give rise to in-house asset issues as well as non-arm’s length, sole purpose and NALI concerns.”
The High Court’s rejection of the proposition that mere non-payment of a UPE amounts to financial accommodation may place pressure on certain aspects of the ATO’s existing position with respect to SMSFs.
However, Figot said until the ATO confirms whether SMSFR 2009/3 will be reviewed in light of Bendel, SMSF trustees and advisers should continue to manage UPEs conservatively, particularly where related unit trusts are involved.
“Few if any SMSFs wish to be test cases. Accordingly, practically speaking, SMSFs should ignore Bendel. In other words, SMSFR 2009/3 is still the safest guidance on which to proceed,” he said.
“However, we acknowledge that some SMSFs, for various reasons, might wish to test the boundaries of the ‘new’ law as it currently stands today post-Bendel. Such SMSFs would have some interesting arguments to make in light of Bendel.”
He added that unless the ATO re-considers its position (and there is no current public information suggesting that they will), such SMSFs should strongly consider first obtaining tailored legal advice on their circumstances.
“The ATO did not say anything in the DIS regarding SMSFs. The ATO did state that certain ATO materials will be withdrawn, and other materials reviewed,” Figot said.
He continued: “The major change so far is that TD 2022/11 will be withdrawn, while a number of other tax determinations and practical compliance guidelines will be reviewed including TR 2022/4, TR 2015/4, TD 2015/20, TD 2011/15, PCG 2022/2 and PCG 2017/13.
“Of course, SMSFR 2009/3 is absent from this list. Accordingly, it does not appear that the ATO has any plans to review let alone withdraw their position in SMSFR 2009/3. The above list of ATO materials that the ATO will withdraw or review does not have any direct involvement with SMSFs.”
Figot said that the ATO was incorrect in Bendel but it’s less certain as to whether it’s wrong in SMSFR 2009/3.
“It is tempting to simply ‘copy’ the interpretation of one phrase from one Act and ‘paste’ that interpretation to a similar phrase from another Act. However, that is not how one should approach the task of statutory interpretation,” he said.
“The High Court majority judgement spent a significant portion of their judgement considering the specific legislative framework and statutory context (see paragraphs 59–85). Naturally, the specific legislative framework and statutory context of s 109D(3) of the ITAA 1936 are different to that of the definition of ‘loan’ in s 10(1) of the SISA.”
