Early access to SMSF money included in taxpayer's assessable income

by Stuart Jones

The AAT has upheld the Commissioner's decision to count money withdrawn from a self-managed superannuation fund (SMSF) in breach of the SIS Act as part of a taxpayer's assessable income under s 304-10 of the ITAA 1997. In 2003, the taxpayer borrowed money from his SMSF to build a yoga studio at his home where his domestic partner intended to conduct a yoga business. The loan was repaid when it became clear after an audit that the loan was not appropriate. However, the taxpayer continued to withdraw a total of $154,848 from the fund when he lost his job in 2008 (although $85,350 was repaid).

In upholding the Commissioner’s decision, the AAT rejected the taxpayer's claim that he was entitled to withdraw the money under the "retirement" condition of release in the SIS Regulations. The AAT considered that a letter prepared by the taxpayer’s accountant, declaring that he had "fully retired from the workforce with no intention of ever working again", was not enough on its own for the trustee to be "reasonably satisfied" that the taxpayer never intended to again become gainfully employed. Given that the taxpayer actually continued working, the AAT said it was unlikely there was any other evidence to enable the trustee to form a view about retirement. The AAT also upheld the Commissioner's decision not to exercise his discretion under s 304-10(4) to exclude the amount from the taxpayer's assessable income to the extent that it would be "unreasonable". Rather, the AAT considered that the taxpayer had effectively treated the SMSF as a bank account to fund his daily activities before retirement. (AAT Case [2012] AATA 781, Re Peach and FCT, AAT, Ref No: 2012/1218, McCabe SM, 9 November 2012.)

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