A recent decision of Deputy Commissioner of Taxation v Lyons [2014] FCA 1353 provides another warning and insight for self managed superannuation fund trustees.
Facts of the Decision:


  • The Fund was registered as a self-managed superannuation fund on 6 June 2008.
  • At all material times, being from 6 June 2008 until 19 November 2012, Mr Lyons and his former wife Mrs Julianne Marie Lyons were the trustees of the Fund.
  • At all material times Mr and Mrs Lyons were the only members of the Fund.
  • Between at least 6 June 2008 and March 2010 Mr and Mrs Lyons carried on a retail business on the Sunshine Coast. During this period the business suffered financial difficulties.
  • Mr and Mrs Lyons became bankrupt on their petitions in March 2010 as a result of personal debts incurred in the carrying on of the business.
  • Between 1 and 3 July 2008 the Fund was capitalised by rollovers from other complying superannuation funds, being Q Super and Rio Tinto Staff Fund. The following amounts were deposited into the Fund’s bank account: $35,853.36; $55,479.06 and $102,127.02.
  • As at 3 July 2008 the Fund had cash assets of $193,459.44.
  • On 3 July 2008, Mr Lyons in his capacity as trustee of the Fund commenced lending money to his brother-in-law, Paul Ellis. Paul Ellis immediately transferred the loan funds to the Lyons’ retail business account to provide working capital to support Mr and Mrs Lyons’ retail business. Mr and Mrs Lyons were advised by a Mr Steve Skeen, Financial Planner, that they could liberate monies from the Fund by entering into those arrangements. This advice was wrong.
  • It is possible to liberate monies from a fund in the case of severe financial hardship. However, for this condition to be met, a trustee must be satisfied that Mr Lyons was in receipt of Commonwealth income support for a continuous period of 26 weeks and that he was unable to meet reasonable and immediate family living expenses. Even if so satisfied, there is a cashing restriction of up to $10,000 for any 12 month period (reg 6.01(5) and Sch 1 of the regulations to the Act). None of these conditions of release were capable of being satisfied. Mr Lyons did not seek another expert’s advice.
  • A “Debtors Factoring Agreement” was entered into between Paul Ellis and the trustees which had the effect of disguising the true purpose of the loans. Mr Skeen prepared the “Debtors Factoring Agreement” and advised generally on the process of withdrawal.
  • The following table sets out the loans that were made back-to-back to Paul Ellis to support the business. Mr Lyons admits that each loan was a contravention of s 65 of the Act, a civil penalty provision, because Paul Ellis was a relative of Mr Lyons (the spouse of Mr Lyons’s sister) for the purposes of the Act


  • Lyons was required to pay a monetary penalty in the sum of $32,500, plus costs of and incidental to this proceeding of $5,000. The Fund also lost its complying status, resulting in additional tax being levied on the Fund.

Source. Federal Court of Australia

What does this all mean?
SMSFs are essentially for those who wish to be in control of their financial affairs and are capable of taking an active role in the management of their fund. Perhaps most importantly, it serves as a reminder that trustees are ultimately responsible and running an SMSF comes with added responsibility and risk. Trustees are responsible for all relevant administrative and compliance tasks and it is no defence to say that one relied on advice.
That being said, reliance on advice is likely to be taken into consideration. If there is any doubt in relation to the compliance of a proposed course of action, expert advice should be sought from an appropriate professional and second opinions should be obtained as deemed necessary. 

There is no such thing as a ‘passive trustee’ — while the Deputy Commissioner only commenced proceedings against Mr Lyons (and not Mrs Lyons), it is important to remember that co-trustees are under a duty to act jointly and their decisions as trustee must be made unanimously (unless otherwise stated).
Keep up to-date with your compliance requirements as an SMSF trustee. Contact Michael Kloeckner: michaelk@clime.com.au – 0488 188 309
Alternatively, register to attend an upcoming SMSF & Estate Planning Event:
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