XPMX and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/3265-2007/3633)
Judgment date: 5 November 2008
Date published: 22 December 2008

Summary of decision:
Outlines the Tax Office's response to this case which concerned whether a notice of non-compliance issued to the trustee of a superannuation fund should be revoked or withdrawn.

Overview of facts:
• The Applicant is a self managed superannuation fund created on 15 February 1998. • Following its establishment, the fund was accepted as a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 (SIS Act). • However, over a period of years the trustees of the fund failed to comply with a number of regulatory requirements under the SIS Act, including the appointment of an auditor and lodgement of returns. • Consequently, the Commissioner issued a notice of non-compliance in respect of the 1998 year of income. • Following a review of the decision to issue the notice, which confirmed the decision, the trustees applied to the Administrative Appeals Tribunal for review of the decision to issue the notice of non-compliance. • The Tribunal set aside the decision to issue the notice and substituted a decision that: '(a) pursuant to s 262A of the SIS Act, the trustees of the Fund are provided the opportunity to furnish a written undertaking to transfer and roll-over the Fund into a nominated industry, retail or public offer fund which is a complying superannuation fund; and (b) within the period of 14 days of publication of these reasons, the trustees furnish the written undertaking to the respondent and then, within that period, they give effect to the undertaking by transferring and rolling-over the Fund to the industry, retail or public offer fund so nominated'. | • The Applicant is a self managed superannuation fund created on 15 February 1998. • Following its establishment, the fund was accepted as a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 (SIS Act). • However, over a period of years the trustees of the fund failed to comply with a number of regulatory requirements under the SIS Act, including the appointment of an auditor and lodgement of returns. • Consequently, the Commissioner issued a notice of non-compliance in respect of the 1998 year of income. • Following a review of the decision to issue the notice, which confirmed the decision, the trustees applied to the Administrative Appeals Tribunal for review of the decision to issue the notice of non-compliance. • The Tribunal set aside the decision to issue the notice and substituted a decision that: | Issues decided by the court or tribunal | The Tribunal decided that: • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds. | • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds.

Issues decided:
The Tribunal decided that: • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds. • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds.

ATO view of decision:
The Tax Office respectfully disagrees with the decision of the Tribunal for these reasons: • Although, at the time of the hearing, the fund was a 'self managed superannuation fund', that description was first introduced by the Superannuation Legislation Amendment Act (No 3) 1999 , with effect from 8 October 1999. • Accordingly, it is the Tax Office's view that: - the fund was not a self managed superannuation fund in respect of the 1998 year of income; and - the trustees having failed to satisfy the conditions in s 42(1) of the SIS Act, the Tax Office was entitled to issue the notice of non-compliance in respect of that year under the transitional provisions in Division 3 of Part 24B of the SIS Act. • In any case, a decision to issue a notice is made under s 40 of the SIS Act, which authorises the giving of notices stating whether a fund is complying or non-complying, rather than under the specific provision under which non-compliance arises. Accordingly, it is the Tax Office's view that a decision to give a notice of non-compliance is valid if justified under either s 42 or s 42A of the SIS Act. | • Although, at the time of the hearing, the fund was a 'self managed superannuation fund', that description was first introduced by the Superannuation Legislation Amendment Act (No 3) 1999 , with effect from 8 October 1999. • Accordingly, it is the Tax Office's view that: - the fund was not a self managed superannuation fund in respect of the 1998 year of income; and - the trustees having failed to satisfy the conditions in s 42(1) of the SIS Act, the Tax Office was entitled to issue the notice of non-compliance in respect of that year under the transitional provisions in Division 3 of Part 24B of the SIS Act. • In any case, a decision to issue a notice is made under s 40 of the SIS Act, which authorises the giving of notices stating whether a fund is complying or non-complying, rather than under the specific provision under which non-compliance arises. Accordingly, it is the Tax Office's view that a decision to give a notice of non-compliance is valid if justified under either s 42 or s 42A of the SIS Act. | - the fund was not a self managed superannuation fund in respect of the 1998 year of income; and - the trustees having failed to satisfy the conditions in s 42(1) of the SIS Act, the Tax Office was entitled to issue the notice of non-compliance in respect of that year under the transitional provisions in Division 3 of Part 24B of the SIS Act. | However, the Tax Office has decided that, in the particular circumstances of this matter, it would not be a responsible use of resources for an appeal to the Federal Court to be undertaken. In reaching that view, regard has been given to: • The cost to the Tax Office and the trustees of conducting litigation in the Federal Court; • The limited ongoing relevance of the decision - the issues in the case would only arise in respect of notices issued in respect of the 1998 and 1999 years of income; • The range of compliance strategies available to the Tax Office in respect of trustees of self managed superannuation funds. | • The cost to the Tax Office and the trustees of conducting litigation in the Federal Court; • The limited ongoing relevance of the decision - the issues in the case would only arise in respect of notices issued in respect of the 1998 and 1999 years of income; • The range of compliance strategies available to the Tax Office in respect of trustees of self managed superannuation funds. | The decision not to lodge a notice of appeal in this case has been taken for these reasons associated with effective use of Commonwealth resources. | However, it should be noted the Tax Office remains committed to ensuring compliance by trustees with their obligations under the SIS Act and in that regard has substantially increased its compliance activities in respect of self managed superannuation funds. | Where those compliance activities identify failures to meet obligations, the Tax Office will apply an appropriate treatment. In the more serious cases, this will include consideration of all or any of the following options: • referral for civil or criminal prosecution; • disqualification of trustees; and • the issuing of a notice of non-compliance which will result in the fund losing its tax concessions. | • referral for civil or criminal prosecution; • disqualification of trustees; and • the issuing of a notice of non-compliance which will result in the fund losing its tax concessions. | Less serious breaches may be dealt with by rectification and on-going monitoring.

Administrative treatment:
None

Legislative references: Superannuation Industry (Supervision) Act 1993 40 42 42A 262A
Subject references: Complying superannuation fund self managed superannuation fund notice of non compliance