Share
Federal Court decision in Commissioner of Taxation v Coronica
 
 
   

Using Super Early? A Real-World Lesson

News | Mehak Gaba| Released: 21/05/2025 | Read: 4 Mins
   

Self-managed superannuation funds (SMSFs) offer individuals greater control over how their retirement savings are managed and invested. Unlike public or retail super funds, an SMSF allows members to tailor their investment strategy to suit their financial goals. However, with this control comes significant legal responsibility.

 

An SMSF is not just a retirement savings vehicle—it’s also a legal structure governed by strict rules under the Superannuation Industry (Supervision) Act 1993 (SIS Act). When you establish and manage an SMSF, you are taking on the role of trustee, meaning you are legally accountable for ensuring that all fund operations comply with superannuation laws.
   

Critically, an SMSF is not a personal bank account. You cannot withdraw funds at will or use the assets for personal gain. Super benefits can only be accessed under specific conditions of release are met. These include:

  • Reaching preservation age and retiring
  • Turning 65, even if still working
  • Permanent incapacity or terminal illness
  • Death, with benefits paid to dependants or the estate

Unless one of these legal conditions is met, withdrawing or using SMSF funds is prohibited.

 
   
https://stratus.campaign-image.com.au/images/27408000011916064_1_1747806731165_zc-noimage.png

 

 

The recent Federal Court decision in Commissioner of Taxation v Coronica serves as a powerful reminder of the consequences of mismanaging SMSF assets. In that case, a trustee repeatedly breached key provisions of the SIS Act—particularly Section 65, which prohibits SMSFs from providing financial assistance to members or their relatives. The result: the trustee was disqualified, and the integrity of the fund was compromised.

 

This case illustrates the seriousness of trustee obligations, and why SMSF members must stay fully informed, compliant, and proactive in managing their responsibilities.

 

 
https://stratus.campaign-image.com.au/images/27408000011916064_1_1747806731165_zc-noimage.png
   

Case Overview: Repeated Breaches and Trustee Disqualification

   

In this case, the trustee (Applicant) engaged in a pattern of serious contraventions over six years:

  • 117 unlawful withdrawals totaling $121,834.92 from the SMSF, mainly to pay personal mortgages.
  • Despite auditor warnings from 2017 onward, breaches continued, and reports were delayed or falsified.
  • Auditor reports indicated persistent non-compliance with Section 65, with outstanding amounts escalating to over $100,000.
  • The Applicant admitted responsibility but delayed rectification and continued breaches resulted in the ATO issuing a notice of intended disqualification.
  • Despite partial repayments, the ATO ultimately disqualified the Applicant from acting as trustee in April 2024 to protect the integrity of the SMSF system.
   

🚫 What Laws Were Breached?

1. Section 65 – Lending or Providing Financial Assistance to Members or Relatives

 

Section 65 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) expressly prohibits SMSFs from lending money or providing financial assistance either directly or indirectly to any member of the fund or a relative of a member.

 

How it was breached in Coronica: Over a period of six years, the trustee made 117 unlawful withdrawals, totalling $121,834.92, from the SMSF. These funds were used to:

  • Pay the trustee’s personal mortgage
  • Cover other personal expenses, unrelated to the fund’s purpose

This constitutes a direct form of financial assistance to a member (the trustee), and is a clear breach of Section 65, regardless of whether the funds were eventually repaid.

 

Key Point: Even temporary loans or informal arrangements—such as paying personal bills or covering mortgage payments from the fund—constitute a breach. These breaches are treated seriously by the ATO, regardless of intent or repayment.

 

2.  Section 62 – The Sole Purpose Test

 

Section 62 of SIS Act, sets out the Sole Purpose Test, which requires that an SMSF must be maintained solely for:

  • Providing retirement benefits to members, or
  • Death benefits to dependants if a member dies before retirement.

 

Prohibited Uses:
Use of SMSF assets for personal benefit before retirement, such as paying home loans, funding holidays, or resolving short-term financial problems, breaches this test—even if the funds are later repaid.

 

How It Was Breached in Coronica:
The trustee used SMSF funds for personal financial obligations, such as mortgage repayments. These uses:

  • Had no connection to retirement objectives
  • Were not part of any permitted condition of release

Such actions are inconsistent with the core legislative purpose of an SMSF and constitute a direct breach of Section 62.

 

Key Point: Even if a trustee intends to repay the fund, any use of SMSF assets for non-retirement purposes unless specifically allowed under superannuation law is a breach of the Sole Purpose Test.
   

⚖️ What Action Did the ATO Take?

   

In response to the trustee’s repeated and serious contraventions, the ATO issued a Notice of Intended Disqualification and formally disqualify trustee from acting as an SMSF trustee in April 2024.

 

Section 126A of the Superannuation Industry (Supervision) Act 1993 provides the ATO and the courts with the power to disqualify an individual from acting as a trustee if they are no longer considered fit and proper.

 

✅ Note: Section 126A is a protective mechanism used after a trustee has failed to meet their legal obligations under other provisions such as Sections 62 or 65 of SIS Act. 
   
   

📌 Accountant’s Role in Responding to Legal Breaches
   

Under Section 260 of the APES 110 Code of Ethics for Professional Accountants, accountants have a professional obligation to act when they become aware of non-compliance with laws and regulations, such as breaches of the SIS Act.

 

This responsibility includes:

 

🔁 Advising the trustee to reverse non-compliant transactions (e.g., illegal withdrawals or loans to members).

📣 Disclosing the breach to the SMSF auditor, to maintain transparency and support the integrity of the audit process.

🧾 Assisting in the correction of financial reports or statements to ensure they accurately reflect the fund’s lawful activities.

📝 Documenting all actions and communications of all findings, communications, and actions taken related to the breach for accountability.

 

Failure to disclose known breaches to the auditor may constitute a breach of professional ethics and expose the accountant to disciplinary action from relevant professional bodies (e.g., CPA Australia, CA ANZ).

 

For comprehensive information, refer to the ATO's Support for SMSF professionals
   

Takeways for Trustees 
   
   

1. Preservation of Retirement Savings: SMSFs must not be treated as personal bank accounts. Section 65 of SIS Act ensures members cannot access funds prematurely or for personal benefit unrelated to retirement.

 

2.  Understand and Follow the Sole Purpose Test: The fund must be maintained solely for retirement or death benefits. Any use of assets for other purposes no matter how small—violates this test and risks serious penalties.

 

3.  Lending or Financial Assistance to Members Is Strictly Prohibited: Trustees cannot lend money or provide any form of financial help—directly or indirectly—to themselves or relatives. Doing so is a common and serious breach.

 

4.  Fix Breaches Promptly and Transparently: Delays in rectifying breaches or attempting to hide them make things worse. Immediate action and honest communication with your auditor or the ATO can reduce consequences.

 

5.  Take Auditor Warnings Seriously: Auditors play a vital compliance role. Ignoring their reports, recommendations, or management letters creates a clear trail of negligence for regulators.

 

6.  Educate Yourself on Trustee Obligations: Ignorance of the law is not a defence. Trustees must understand key SIS Act provisions and ensure they are equipped to manage the fund legally and responsibly.

 

7.  Maintain Timely and Accurate Reporting: Late, false, or missing lodgements raise red flags with the ATO. Trustees must ensure that financial statements, the SMSF Annual Return (SAR), contribution reporting, and the Independent Audit Report are prepared and lodged on time, accurately reflecting the fund’s financial activities and compliance status.

 

8.  Long-Term Reputation and Financial Planning at Risk: Disqualification limits your ability to manage any SMSF and may impact your career in financial or professional services. It’s not just a legal issue—it’s a personal and financial one too.

 

9.  Seek Professional Advice Before Acting: If you’re unsure whether a transaction is allowed, consult a licensed SMSF adviser, accountant, or auditor. Getting advice early can prevent costly mistakes.

 

10. Keep Your SMSF Compliant:  Trustees must ensure their SMSF trust deed remains up to date with the latest legislative changes and regulatory requirements. An outdated deed can expose the fund to compliance risks, especially when implementing new strategies or responding to law reforms.

   

Conclusion: Upholding the Integrity of SMSFs

   

The case underscores the importance of trustee accountability and the regulatory framework designed to protect superannuation savings. Trustees who fail to comply with super laws not only risk penalties and disqualification but also undermine the retirement security of fund members.

 

SMSF trustees must ensure their actions align with the legal framework, treating superannuation as the retirement savings vehicle it is intended to be.
   
   

New Service Alert: Bare Trust Deed Stamping Made Easy!

We heard you—and we’re expanding our services! 🎉

You can now get your Bare Trust Deed stamped for just $660 (plus government fees).

 

After successfully providing stamping services for Discretionary Trusts and Unit Trusts, we’re excited to announce that Bare Trust (Custodian Trust) Deed stamping is now officially available at Trustdeed.

 

Call us on 02-96844199 to know more.

 

Stay compliant, avoid penalties, and simplify your LRBA process—all in one place.
   
   

Visit www.trustdeed.com.au for more details or call us on(02) 9684 4199
   

Follow Us On

 You are receiving this email as you signed up for our newsletters.

 Want to change how you receive these emails?

You can Unsubscribe or Update your preferences
 
click here to unsubscribe from the mailing list
Share