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


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 He has still not replenished the SMSF with the amount withdrawn.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 The amount of $59,650 withdrawn was also included in his assessable income and taxed at normal marginal rates of tax.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:

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™

SMSF Specialist Adviser 

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Verante Financial Planning

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Leave a comment


  1. Rachael

     /  August 19, 2019

    Did Mr Eddy have to pay court costs too or was the matter resolved through ATO?


    • He paid $5,000 of the ATO’s costs – “Accordingly, in addition to the declaratory orders sought, I will impose a monetary penalty of $15,000 to be paid in weekly instalments of $192.31, with the first instalment to be paid on or before 31 January 2011. In addition, I order the respondent to pay the applicant’s costs of and incidental to the application which, by agreement, I fix at $5000. It is to be paid on the same basis, so that the total sum payable of $20,000 will be paid over a period of two years by 104 weekly instalments of $192.31, with the first instalment to be paid on or before 31 January 2011.”


    • He had to pay $5000 of the ATO’s costs



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