Section 65 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) prohibits the trustee of an SMSF making a loan to a member or a relative, or providing other financial assistance using the resources of the SMSF. Section 62 contains the sole purpose test and requires the SMSF to be maintained for particular purposes.
In Colaciella v Christensen & Ano; Colaciello Super Pty Ltd v Christensen & Anorr [2023] VSR 586, the trustee of the SMSF did exactly that, and the Victorian Supreme Court refused to allow the loans to be enforced as they were a breach of sections 62 and 65 of the SIS Act.
The facts
Mr Colaciello became involved in a gambling syndicate and wanted to access his superannuation to continue to contribute. His neighbour and best friend Mr Christensen was a financial adviser and introduced him to the gambling syndicate. Mr Christensen suggested Mr Colaciello set up an SMSF as a mechanism to access his superannuation.
Having set up the SMSF, it loaned the funds to Mrs Christensen (Mr Christensen's wife), who on-loaned them to Mr Colaciello for use in the gambling syndicate. The loans were back to back arrangements, drafted by the same lawyer and all signed at the same time, and Mrs Christensen was only required to repay the loan to the SMSF as Mr Colaciello repaid the loan to her.
The gambling syndicate turned out to be a Ponzi scheme and Mr Vlahos the organiser was convicted of fraud. Most of the funds contributed to the gambling syndicate were lost.
One of the many lawsuits brought by the Colaciellos against the Christensens was the SMSF enforcing repayment of the loan to Mrs Christensen. Mrs Christensen argued the loan was prohibited under section 65 of the SIS Act and therefore not enforceable.
The Victorian Supreme Court agreed, deciding that the loans to Mrs Christensen were unenforceable as expressly or impliedly prohibited by sections 62 and 65 of the SIS Act.
Given the decision, it is likely further action will occur in relation to the transactions, particularly from the ATO.
The lesson
This case confirms the wide scope of the sole purpose test and particularly highlights the importance of obtaining appropriate advice about arrangements before entering into them.
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