Breach the SMSF access rules and the penalties are high


I understand the temptation is there and it may seem a simple matter, after all the money is yours so you might think you are clever and that you will get away  with it but the ATO and its systems are getting better at tracking and challenging those that breach the rules. It may be the most costly access to funds  you have ever incurred.

Here is an example of how it can all go wrong:

Olesen v Eddy [2011] FCA 13 – Breach of sole purpose test – Early Access – providing financial assistance to members

Background:

The A Eddy self managed super fund was established in 18 May 2005. Mr Anthony Wade Eddy was the sole member of the fund which had individual trustees being Mr Eddy and his brother

By 1 July 2005, two superannuation funds, Statewide Superannuation Trust and the Australian Retirement Fund had made two rollover payments to the Fund, totalling $56,082.

Between September 2005 and September 2008, employer contributions totalling $21,616 were made to the Fund.

During that time, the Mr Eddy withdrew funds from his SMSF. He made 130 separate and relatively small transactions progressively for his personal benefit and use.

In the financial years 2006, 2007, 2008 and 2009, the withdrawals by Mr Eddy totalled $59,650, $6003, $5867 and $4050 respectively. The total of those amounts is $75,570.

Mr Eddy was not eligible to make any of these withdrawals.

The unauthorised withdrawals during were reported to the auditor as loans to the respondent. They represented about 98% of the assets of the Fund. The auditor then reported those contraventions to the Commissioner.

Mr Eddy was notified by the ATO on 21 January 2008 that he was immediately to rectify the contraventions. He was also notified by the auditor on 14 February 2008. He did not take action to do so. He has still not replenished the SMSF with the amount withdrawn.

He actually continued to make further withdrawals after this time.

Issues arising from this case

By making unauthorised withdrawals, the A Eddy self managed super fund (SMSF) breached the sole purpose test as per section 62 of the SIS Act. The fund also breached section 65 of the SIS Act, as it provided financial assistance (loans) to the member.

This was considered a serious breach and Mr Eddy was ordered to pay a fine of $15,000 and ATO costs of $5,000. The amount of $59,650 withdrawn was also included in his assessable income and taxed at normal marginal rates of tax.

Had Mr Eddy replenished the funds and agreed to recompense the fund for lost interest he could probably have resolved the issue without a fine and the additional income tax. NOTE: If given a way out of the poo …take it!

If we assume to make it easy that by adding these funds to his income in the 2011/12 year that he was in the 37.5% tax bracket …no 38.5% ….remember the flood levy, then the income tax would be $22,965.25 on top of the $20,000 fine.*

That a total of up to $42,965.25 to access $$75,570 or 56.85% cost to access those funds!

*the amount would probably have bene added to his 2006 income and an amended assessment would have been issued for that tax year.

The full case notes can be accessed here:

http://www.austlii.edu.au/au/cases/cth/FCA/2011/13.html

Watch the ATO video on early release

I hope this guidance  has been helpful and please take the time to comment. Feedback always appreciated.  Feel free to reblog, retweet, put on your Facebook page etc . Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Bye for now.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

 Follow SMSFCoach on Twitter  Liam Shorte on Linkedin  NextGen Wealth on Facebook 

Tel: 02 8853 6833,  Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

 

ABN 20 060 778 216 • AFSL No.232686

Liam Shorte is a partner in Verante,  Corporate Authorised Representative of Genesys Wealth Advisers Limited, Licence No 232686, Genesys Wealth Advisers Limited ABN 20 060 778 216.

Important information :

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Genesys and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

Leave a comment

Let us know what you think? Have you got a question based on the article? Let me know

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: