Article Posted by smartcompany
28 September 2015
A married couple is paying a high price in fines and lost retirement savings for illegally using most of the assets in their self-managed super fund (SMSF) to service a line-of-credit incurred for their failed dry-cleaning business.
As trustees of their SMSF, Carolyn and Joseph Ryan arranged for 68 so-called loans to themselves over three years to make payments on the line-of-credit debt remaining after their unsuccessful business was sold.
The Federal Court this month personally fined each trustee $20,000 in civil penalties for breaching some of most fundamental provisions in superannuation law.
This case should serve as a severe warning to business owners about using their SMSF assets to pay their business-related debts.
The judgment in the Deputy Commissioner of Taxation (Superannuation) versus Carolyn Robyn Ryan and Joseph Ryan discloses the couple’s plight and their successive contraventions in stark detail.
The “loans” from the Ryan’s SMSF to themselves have a total value of $209,677, reducing the balance of the fund to just $6024.20 by June 2015. As the judgment states: “The fund is almost exhausted.”
And the “loans” were unsecured, with no interest rates or repayment term. Just $28,313 was repaid.
The trustees breached the sole-purpose test in superannuation law (stipulating that a super fund must be maintained to provide retirement benefits) together with the ban on providing financial assistance or loans to fund members and their relatives.
Their other contraventions of superannuation law include the in-house asset rule (with a few exceptions, super funds are prohibited from making loans or having investments with related parties and entities that exceed 5% of its total asset value). Further, they breached the provision that a super fund’s transactions must be conducted on an arm’s length basis.
Lessons arising from this case for SME owners with self-managed super funds include: