Merchant decision ‘does not displace longstanding principles’, says ATO
The decision by the AAT to overturn a trustee disqualification has “limited broader application” given the peculiar circumstances of the case, says the Tax Office.
The ATO has released its Decision Impact Statement on Merchant and Commissioner of Taxation [2024] AATA 1102 saying that the decision does not displace the principle that the primary responsibility for operating a self-managed super fund rests with the individual trustees or the directors of the corporate trustee.
The ATO said that while it accepts mistakes can be made by trustees in the management of a fund’s affairs, what is important is that the trustee demonstrates a willingness to comply with their obligations.
The decision of Merchant v Commissioner of Taxation [2024] AATA 1102 found that while there were contraventions of the SIS Act, Gordon Merchant’s disqualification was set aside because the Administrative Appeals Tribunal found that the risk of future non-compliance was unlikely.
Its reasons for this decision were that Merchant was a fit and proper person and there was no evidence that he was advised that the transaction in question risked breaching the SIS Act.
Merchant had also given undertakings to mitigate the future risk of non-compliance and the AAT said that the contraventions of the SIS Act, while serious, related to a single course of conduct.
The AAT ruling said that in relation to protecting the investing public, Merchant was only likely to be a director of the trustee of his own superannuation fund and that the offending transaction was suggested by the fund’s auditor without any warning of compliance issues and, as such, there was no useful purpose served by disqualification in this instance.
The ATO’s Decision Impact Statement said that the tribunal’s decision that there were serious breaches of subsections 34(1), 62(1) and 65(1) is consistent with its own.
“When considering all of the specific facts of this case the tribunal concluded that there was an unlikely risk of future non-compliance by the applicant,” it said.
“This holistic consideration by the tribunal of all of those particular facts is consistent with the Commissioner’s approach as outlined in Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds – disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund.”
It said that before implementing a disqualification under subsection 126A(2), the Commissioner should consider the acts of the individual, all the facts of the case, and whether there is a future compliance risk.
“The nature, number and seriousness of contraventions are questions of fact and degree, and it is not possible to apply prescriptive rules to the decision to disqualify,” it said.
“An individual may be considered to be a future compliance risk if it is reasonable to draw that conclusion from their compliance history. This includes considering matters in relation to the management of their superannuation fund as well as their own personal tax affairs, or that of any other entity in which they have been in a position of responsibility.”
It said that in this matter, the Commissioner had maintained that the nature, number, and seriousness of contraventions by the applicant were sufficient grounds for disqualification under subsection 126A(2).
“Further, as disqualification is designed to protect the investing public against the risk that people with a history of non-compliance will re-offend, the Commissioner had considered it reasonable to conclude that the applicant posed a future compliance risk given the serious contraventions of the SISA,” it said.
“However, we accept that, when considering the tribunal’s holistic consideration of all the particular facts as they applied to the applicant, the decision that the applicant was unlikely to be a future compliance risk and setting aside the disqualification of the applicant, was reasonably available to the tribunal on the facts before it.”
It said that as each case must be decided on its particular circumstances, the ATO’s view is that this decision has limited broader application beyond the “peculiar circumstances of this case”.
“Furthermore, the decision does not displace the long-standing principle that the primary responsibility for operating a self-managed super fund rests with the individual trustees or the directors of the corporate trustee nor restricts other consequences of contravening a civil penalty provision,” it said.
It said that the decision in Coronica and Commissioner of Taxation [2024] AATA 2592 by the tribunal on 19 July 2024 applied the same factors considered in the Merchant case and arrived at a different outcome, affirming the Commissioner’s original trustee disqualification decision.
