Morrison v Commissioner of Taxation [2015] AATA 114, a recent AAT decision, found that a borrowing arrangement entered into by the taxpayers and an offshore bank in Samoa was a sham.  As a result, the taxpayers were found to have early accessed funds in their self managed superannuation fund (SMSF) and were assessed on the amount they they had accessed at the time of the access.

The arrangement was entered into upon advice by the taxpayer’s agent. The taxpayers thought they were receiving a good deal and did not question the arrangement.

The Commissioner assessed the taxpayers for the full amount of the early accessed benefits from the time of the early access. Severe penalties were also imposed. The taxpayers appealed to the Tribunal.

The Tribunal found that the Commissioner’s assessment was correct. Moreover the arrangement was a sham and evasion had occurred.

The tribunal acknowledged that the taxpayers were unwitting participants in the sham. However, the tribunal also found that the relevant intention in this instance was that of the agent.

The case highlights the traps for unwary taxpayers who do not query arrangements that are simply too good to be true.

Message:  Taxpayers should receive legal advice from superannuation specialists before implementing financial arrangements relating to their SMSF. They should then assess the advice.