In the case Merchant and Commissioner of Taxation [2021] AATA 915, the AAT affirmed the decisions of the Commissioner of Taxation to disqualify Mr Merchant and Ms Paull (“Applicants”) from acting as trustees or responsible officers of corporate trustees of superannuation entities, under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), rejecting the applicants adjournment in respect of the disqualification review.

Mr Merchant is the sole member of his SMSF, Gordon Merchant Superannuation Fund (GMSF). Ms Paull is the sole member of her SMSF, CP Staff Superannuation Fund (CPSSF).

In September 2014, GMSF acquired 10,344,828 shares in Billabong International Limited (BBG) from the trustee for Merchant Family Trust (MFT) (BBG Share Transfer).

On 21 July 2020, the commissioner notified Mr Merchant and Ms Paull of the decision, to disqualify each of them from acting as trustees or responsible officers of corporate trustees of superannuation entities, under subsections 126A(2) and 126A(3) of the SIS Act.

The commissioner found that GSM Superannuation Pty Ltd as trustee for GMSF contravened section 34(1) of the SIS Act because Mr Merchant and Ms Paull did not give effect to GMSF’s investment strategy and regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) as part of their listed shares acquisition.

It also found they breached the sole purpose test and the prohibition on using SMSF resources to financially assist SMSF members or their relatives.

On 11 August 2020, Mr Merchant, Ms Paull and GMSF requested the commissioner reconsider the Initial Decisions. However, the commissioner upheld his decision.

In the current proceedings, Mr Merchant and Ms Paull contended that the commissioner’s decision that the trustee breached section 62(1) of the SIS Act (the sole purpose test) and section 65(1) (the prohibition on providing financial assistance to a fund member) relies to a significant extent on the commissioner’s contention that Part IVA of the Income Tax Assessment Act 1936 (ITAA) applies to the BBG Share Transfer.

The applicants submitted that the Disqualification Decisions rely on the correctness of the commissioner’s decision in the income tax audit as to the purpose of the BBG Share Transfer. 

It argued that the Disqualification Review depends upon the determination of whether Part IVA applies to the BBG Share Transfer and that the proceedings should be adjourned until Mr Merchant, MFT and GSM have exhausted their rights of review under Part IVC of the TAA in respect of the Income Tax Assessments.

AAT deputy president Ian Molloy rejected these submissions and held the view that whether Part IVA of the ITAA applies in respect of the BBG Share Transfer is not determinative of any of the matters the subject of the Disqualification Review.

“It is true that some of the same facts and circumstances by which the commissioner arrived at the Income Tax Assessments were also of significance in reaching the Reviewable Decisions, and at times in the course of the reasoning, the commissioner referred to the findings on Part IVA of the ITAA,” Mr Molloy said.

“The issues, however, are not the same. A decision whether or not Part IVA of the ITAA applies to the BBG Share Transfer is not determinative of any of the matters the subject of the Disqualification Review. The commissioner may have relied on his findings in respect of Part IVA to arrive at the Reviewable Decisions. The Disqualification Review, however, is a fresh merits review.”

Alternatively, it was also submitted on behalf of the Applicants that if the tribunal were to proceed to resolve the Disqualification Review on the basis that it can determine for itself whether Part IVA of the ITAA applies to the BBG Share Transfer, there is the risk of a conflicting decision of the tribunal and the court or tribunal in the Part IVC appeal relating to the income tax review which is not efficient or cost-effective and would involve a waste of time and resources of the tribunal.

Mr Molloy held the view that the argument proceeds on the same false premise and that the tribunal in the Disqualification Review is not determining whether Part IVA of the ITAA applies to the BBG Share Transfer.  

“I accept the commissioner’s submission that the conclusion to be drawn in the Income Tax Review in respect of whether the commissioner was entitled to issue amended assessments because of the operation of Part IVA of the ITAA is different to the conclusion to be drawn in the Disqualification Review as to whether there has been a breach of the SIS Act.”

The tribunal decision comes after it was reported Mr Merchant had filed a major lawsuit last year against big four firm EY over advice that was given which resulted in an audit by the ATO in 2017 and led to Mr Merchant’s disqualification for contravening superannuation laws.