“The fact that in many instances, is that the ATO looks at these particular rules and restrictions in isolation which might seem good in theory, but ultimately creates some fairly significant problems in other aspects of the law,” he said.

Tim Miller, head of education for Smarter SMSF, said investment restrictions have not moved since the turn of the century when there was the introduction of a lot of the related party rules from 1999 onwards.

“We have seen [regulations around] limited recourse borrowing arrangements and collectables and personal use of assets, but a lot of the other rules around things like financial assistance, sole purpose, in-house asset rules have all largely remained the same,” he said.

“However, what has occurred is that there's been a greater emphasis placed on the linkage between the SIS Act and the Tax Act, and where transactions sit with regard to a compliance point of view.”

Miller said one of the more recent legal cases highlighting this was Merchant v Commissioner of Taxation [2024] AATA 1102, which stemmed from the fact that the plaintiff, Gordon Merchant, used his SMSF to purchase Billabong shares (the company which he co-founded) from the Merchant family trust.

“Now, in isolation, it all looks good – acquiring equity at market value. It just so happened that market value was about $55 million lower than what the family trust had paid for them,” Miller said.

“He was to have a distribution that was slightly higher, but was going to be alleviated by this, so discounts in trust on sale of another family trust asset was around about $100 million mark, and then discounts were applied that ultimately cancelled each other out”.

He continued that the loss within the family trust on the sale of Billabong to the super fund was fairly substantial because in the ATO’s view, it provided financial assistance to Merchant.

“But further than that, the ATO looked at the sole purpose test and from the sole purpose test point of view, it asked the question as to the purpose of this transaction – was it to provide full retirement benefits for the member or their beneficiaries, or is there some other underlying purpose?” Miller asked.

“The ATO said in this instance, the underlying purpose, the primary purpose, was tax-driven rather than retirement benefit-driven.”

He continued that Merchant had received advice that there was no issue with the acquisition of these assets from a related party that is in accordance with law, but there may be some taxation considerations.

“In essence, the Tax Office said, he was in breach of the sole purpose test, financial assistance, and of the operating standards because to have that many of the one share is outside the scope of the existing investment strategy,” he said.

“The ATO disqualified him as a trustee but deemed in the same conversation that he was a fit and proper person, but he was disqualified because he had breached a section or multiple sections, and it felt if people have repeat behaviours it wanted to look at where that might sit from a public perception concerning whether or not it poses a risk to anybody else.”

Miller said Merchant appealed the disqualification to the AAT which ruled in his favour stating that the Tax Office had already indicated that he was a fit and proper person and the large transaction was only one event for which he had received financial advice, which was not in breach of the legislation.

“It brings us back to the fact that there have been other cases and we're seeing a greater link to the outcomes of the transaction from a tax and a financial position, versus this specific question as to whether one element of this satisfies one requirement of the SIS Act,” Miller said.