Veteran SMSF operator Giuseppe Coronica disqualified after hitting trouble with ATO

The disqualification of an ‘opportunistic’ veteran SMSF operator has wider lessons for all independent investors.

The new ATO commissioner, Rob Heferen, has oversight of Self Managed Super Funds. Picture: John Feder

Managing your retirement savings via a self-managed super fund can produce great results if used the right way. If you wish to purchase investment property through super, borrow money through super, buy a kilo of gold or invest in something that is not on the ‘‘approved list’’ of your normal super fund, an SMSF may fit the bill.

However, the most common complaint about an SMSF is the responsibility that comes with it.

As soon as you establish your fund, there are a myriad of rules and regulations that must be followed or you can face significant financial penalties, even jail.

The ATO disqualified 753 trustees during the 2023 financial year and imposed $29m in fines.

One of the more interesting cases where a SMSF trustee was banned involved a Certified Practising Accountant (CPA) with 50 years of experience. A decision to ban Giuseppe Coronica from being an SMSF trustee was recently upheld by the Administrative Appeals Tribunal (AAT).

The 45-page decision from the AAT reads like a textbook on what not to do when running a SMSF.

While the AAT acknowledged that accountant Giuseppe Coronica had a passion and enthusiasm for accounting, they found that he “did not have the proper discipline and focus with respect to the regulatory regime governing superannuation funds”.

Instead, the tribunal found that Mr Coronica adopted an opportunistic attitude to suit his self-interests as he took advantage of his role as a trustee of the fund.

Mr Coronica is an accountant and tax agent who started trading in 1970, and is a Fellow of CPA Australia.

In addition to running a traditional accounting practice he also gained experience in valuations, having been engaged by an insolvency firm to perform an investigation into the financial reporting and asset valuations of the agricultural investment company Timbercorp, which went into liquidation in 2009.

Mr Coronica was the auditor of his fund, The G Coronica Superannuation fund, from 2000 to 2007. During 2010 to 2012 his daughter Chantelle Mansour was appointed as the fund’s auditor; Simon McCormack was auditor for the 2013 and 2014 income years. The AAT found that Mr Coronica, as trustee of his SMSF, contravened 12 regulatory obligations in 2009 and a further 14 from 2010 to 2014.

In his defence, Mr Coronica won an earlier AAT proceeding which set aside the initial disqualification decision. It was only after the Commissioner of Taxation appealed to the Federal Court that the earlier Tribunal win was set aside and another AAT hearing scheduled, at which point Mr Coronica had the ban reinstated.

The most recent AAT decision papers said: “Mr Coronica stated that the disqualification decision was an over-reaction by the Commissioner and served no legitimate regulatory purpose in circumstances where he was not a future compliance risk, especially as he was only ever a trustee of his own self-managed superannuation fund (SMSF). Besides, he had extensive accounting and tax experience and an otherwise unblemished tax record.”

What’s the problem?

Well it turns out there were many.

In April 2009 Mr Coronica transferred all the shares of his company G. Coronica Nominees Pty Ltd to his SMSF for $100,000.

The super fund then received $210,000 in dividends and $90,000 in franking credits in the six financial years from 2009 from these shares.

The AAT found that the market value of the company shares was significantly more than $100,000 and that “Mr Coronica’s reliance on his undocumented valuation of his private investment company that, while not wilful, was grossly negligent if not incompetent … It can be inferred from all of the circumstances that Mr Coronica was taking advantage of his position to game the system.”

Mr Coronica was found to have breached Section 62 of the SIS Act relating to the sole purpose test for this transaction. Superannuation is designed to provide retirement benefits to members, whereas transferring the company shares to the SMSF was ruled to be primarily for tax reasons.

The transfer resulted in Mr Coronica’s SMSF paying only 15 per cent tax on the dividends rather than Mr Coronica’s higher marginal tax rate.

The AAT said “it can be inferred that Mr Coronica sought to minimise his tax liability”.

Excluding a few exemptions such as business real property and listed securities, Section 66 of the SIS Act prohibits a SMSF from purchasing assets from related parties.

That said, up to 5 per cent of a funds assets can be deemed an ‘‘in-house asset’’. This is an asset of the fund that breaches a rule, but as long as the total value of these assets does not exceed 5 per cent of the fund, the ATO allows it. Mr Coronica had exceeded the 5 per cent in-house asset limit with his share transaction.

Other breaches

He also breached rules relating to investments in related trusts.

Mr Coronica owned a property in his own name in King Island, Tasmania which he transferred to a Mr and Mrs Davis in 2012. He also transferred another King Island property to that couple’s son-in-law in 2012 and transferred a Blackburn Victoria property to a Ms Rigoli in 2014. Each time Mr Coronica lent part of the purchase price and established a bare trust to hold the mortgage in which his SMSF invested in, breaching Section 71 of the SIS Act.

In other loan transactions, the AAT determined that in 2009 Mr Coronica owed his super fund $248,842.50 after which a further member loan of $150,000 was advanced. In addition, the proceeds from some livestock owned by the SMSF were deposited in Mr Coronica’s personal bank account. This breaches Section 65 of the SIS Act regarding lending to members or relatives of a fund.

SMSF trust deed provisions were also breached.

The number of SMSFs continues to grow each year and the average assets in each SMSF is approaching $1.5m. If you do establish an SMSF, be sure to have a good team of professionals, consisting of a financial adviser, fund accountant and fund auditor to stay on the right side of the rules.

James Gerrard is principal and director of Sydney financial planning firm www.financialadvisor.com.au