Trustees of SMSF penalised for related party loans

The Federal Court has imposed pecuniary penalties of $20,000 each on two trustees of a SMSF for related party loans which breached various provisions of the Superannuation Industry (Supervision) Act 1993 (SISA).

From January 1999 until January 2014, Mr and Mrs Ryan were the trustees, and the only members, of the Lawryan Family Superannuation Fund, a self managed superannuation fund.

Over a three-year period from June 2009 to June 2012, they made related party loans to themselves of $209,677. The loans were unsecured, had no interest rate, no repayment term and only $28,313 was repaid. The moneys were used by the Ryans to meet some of their everyday personal expenses and to service a line of credit relating to their unsuccessful dry cleaning business.

The Commissioner considered that the Ryans had contravened s 62(1) (sole purpose test), 65(1) (prohibition against giving financial assistance to members), 84(1) (in house asset rules) and 109(1) (prohibition against non-arm’s length dealings). The contraventions left the fund almost exhausted ($6,034 remained). Accordingly, the Commissioner sought pecuniary penalties against the Ryans under s 196.

Before the court, the Ryans admitted to all of the contraventions.

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. These were to be paid in monthly instalments over three years.