New ART decision sheds light — what can save an individual from SMSF disqualification

The ATO can disqualify an individual from having an SMSF. However, the ATO has discretion as to when it exercises this power. Contraventions can occur without disqualification. A recent ART decision sheds light on when disqualification might not occur.

The ART decision is Omibiyi and FCT [2025] ARTA 553. The full text is available at <https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/ARTA/2025/553.html>.

Facts

In 2014, Oladokun Omibiyi (Applicant) and his wife established an SMSF.

The Applicant showed a ‘contumelious disregard for the law.’ He frequently accessed the SMSF for his own purposes. Those purposes included paying mortgages over the family home and two investment properties.

The SMSF’s annual returns were late for the 2015, 2018, 2019 and 2020 financial years.

In November 2023, the ATO advised that it had selected the SMSF for audit. In February 2024, the ATO issued the Applicant a position paper. The position paper explained reasons why the ATO might disqualify the Applicant from having an SMSF. The ATO counted 117 withdrawals from the SMSF.

In March 2014, the Applicant stated to the ATO that the withdrawn funds were a loan ‘to be repaid along with interest.’ Nevertheless, in April 2024, the ATO disqualified the Applicant.

In May 2024, the Applicant repaid the outstanding loan balance. Yet, the disqualification stood.

The Applicant applied to the ART for review of the ATO’s disqualification.

ATO’s practice statement on disqualification

The ATO has a longstanding practice statement on disqualification. See PS LA 2006/17, available at <https://www.ato.gov.au/law/view/document?DocID=PSR/PS200617/NAT/ATO/00001&PiT=99991231235958>. The ART did not expressly discuss the practice statement. However, a key consideration from that practice statement is that:

Disqualification … is primarily aimed at protecting the integrity of the superannuation system. It should be applied where we are concerned that allowing the individual to remain in the position of trustee would present a future compliance risk.

The ART certainly adopted this concept in its decision. The ART cited a decision of the Full Court of the Federal Court, where Mortimer J considered how to determine future compliance risk, namely:

More than the bare recitation of the past offending is required, and what is required for such evidence to be considered is strictly controlled by reference to the nature and circumstances of the offending.

ART’s decision

In the following order, the ART explained the following provisions as being contravened:

• s 65 (prohibition on loans to SMSF members);
• s 83 (in-house asset rules);
• s 62 (sole purpose test);
• s 109 (arm’s length rules); and
• s 35D (requirement to lodge annual returns on time) — the ART stated that it is ‘very serious’ as contraventions may go undetected if annual returns are not lodged.

The ART noted that the Applicant’s past conduct  indicated a likely preparedness to contravene obligations so as to improve his financial position in the future. The contraventions were considered serious and repeated despite advice that he was breaching the law. Weight was also given to the fact that they occurred over an extended period of time (years) rather than over a short period. The ART also did not consider the contraventions to be due to a misunderstanding of the law or situation and that despite the Applicant having sought advice and training since the contraventions, he had not demonstrated that had he had his ‘new’ knowledge at the time of the contraventions he would not have acted in the same way.

What might make disqualification less likely

A disqualification is less likely if one can demonstrate that remaining as a trustee would not present a future compliance risk. Based on this ART decision, disqualification will be less likely where:

• a course of education is completed after the contraventions are identified (here, the Applicant intended to engage in courses after dealing with this application, but had not completed any);
• contraventions are few (here, there were 117 withdrawals);
• annual returns are lodged on time (here, there were four years of late lodgement, preventing auditor advice from being given to the Applicant in a timely fashion)
• the contraventions occur over a short period of time (here, the contraventions started in the 2017 financial year and were not fully rectified until May 2024);
• rectification action is taken as soon as the applicant is aware of the contraventions (here, the contraventions were not rectified until after the ATO had audited the SMSF);
• professional advice is sought by the applicant as the applicant is aware of the contraventions (eg, from lawyers) and assistance as early as possible (here, the Applicant only sought professional advice and assistance relatively recently (from December 2024));
• the professional advice sought is not limited in nature;
• written and oral evidence of the applicant and their actions are consistent with a person taking accountability for their choices and appreciation for the severity of the contraventions (here, the Applicant initially stated that his actions were inadvertent and said that he did not believe that the contraventions affected the SMSF’s assets or exposed the SMSF to risk); and
• there is a significant negative financial and reputational impact to disqualification (here, the ART expressly stated that it took into account the impact on the Applicant as an accountant, businessman and the holder of a casino licence if disqualified).

Conclusion

Naturally, SMSF trustees/directors should strive to comply with all laws at all times. If a trustee fails to do so, how  individuals address and take accountability for such mistakes is critical. Addressing them one way can result in disqualification (and typically other negative impacts too). However, addressing them in other ways might only result in more ‘mild’ implications.

Involving lawyers — and involving them early and broadly — can be a helpful factor. DBA Lawyers has significant experience with disqualification matters and is pleased to accept such referrals.

Related articles

• SMSFs and voluntary disclosure to the ATO
• Merchant v Commissioner of Taxation [2024] AATA 1102 — Latest AAT decision on disqualification

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Bryce Figot, Special Counsel ([email protected]) and Cassandra Hurley, Lawyer ([email protected]), DBA Lawyers Pty Ltd

DBA LAWYERS

15 May 2025