Assignment task:
Note: In your answers to the questions below refer to the relevant provision of the Superannuation Industry (Supervision) Act 1993 and associated Regulations (together, the "SIS Rules") and explain specifically how the SIS Rules are relevant to your answer.
The Pham self-managed superannuation fund was registered as a self-managed superannuation fund on 1 July 2022(the fund).
Mr and Mrs Pham and their son, Ablone, are members of the fund. The son is 15 years old. Mr and Mrs Pham were the only listed trustees of the fund.
On 1 July 2022 the fund was capitalised by rollovers from other complying superannuation funds in the amounts of $25,000, $35,000 and $40,000. The amounts were deposited into the fund's bank account. On 10 July 2022 a further $15,000 was rolled into the fund. This amount was temporarily held in Mr Pham's bank account. Mr Pham later withdrew $100 because he couldn't access his own credit card at the time. The $15,000 ultimately ended up in the fund's bank account.
On 15 July 2022 Mr and Mrs Pham each contributed $10,000 into the fund's bank account. Maximum concessional amount for the current financial year is $27,500.
In the current financial year, Mr Pham earned $180,000 (plus 9.5% SG) and Mrs Pham earned $190,000 (plus 9.5% SG) (show working).
On 1 August 2022 Mr and Mrs Pham also began a farming business in rural Wagga Wagga.
Mr Pham's sister, Maiya, and her kids came to visit the Pham farm for a couple of days over the holiday period. Unbeknown to Mr Pham, Maiya was not in a good financial position. Maiya asked Mr Pham for a loan in an amount of $6,000. Mr Pham said to Mrs Pham "shall we loan Maiya $6,000 out of the fund moneys? We have plenty in there now". Mrs Pham responded, "don't bother me with your sister's business, you know she's trouble!" Mr Pham went to the fund's bank and gave Maiya $6,000 cash. Maiya didn't end up repaying the loan. Mr Pham didn't take any action against her as he felt sorry for Maiya.
Mr Pham's brother, Trevor, operated a farm in Woppygong. Trevor was keen to get rid of some of his equipment as Covid had been tough. The floods then came through and Trevor could use some extra cash. Trevor approached Mr Pham about whether he wanted to buy his tractor. Mr Pham was delighted and offered Trevor $15,000 for it. Mr Pham purchased it through the fund. Mr Pham also purchased from Trevor a seed extractor for $2,500, also through the fund account.
The Pham property was located on 200 hectares of prime Vietnamese herb growing land. It was titled freehold, and Mr and Mrs Pham held legal title to the property in equal shares. Mr and Mrs Pham had built an amazing 3-bedroom house on one hectare of the property. Mr and Mrs Pham had it professionally valued at $750,000. Mr and Mrs Pham employed a couple of workers to help them with growing the Vietnamese herbs. The operation was extensive, and they often worked 7 days a week.
The business had entered into herb supply agreements with local supermarkets which were ongoing for the next 6 years. The property was also used for the grazing of goats, but this was minimal operation compared to the herb business. Mr Pham had a sweet tooth and had planted some fig trees around the house. The fig trees occupied about half an hectare and are currently flourishing. Mr Pham doesn't intend to do anything other than make fig jam with the seasonal figs that he picks.
On 2 November 2022, Mr and Mrs Pham invested in some steel shelters for the herb business. The herb yield is higher when herbs are grown in shelters. It's pretty windy in rural Wagga Wagga so Mr Pham was advised by the manufacturer to concrete the shelter supports into the ground.
Also on 2 November 2022, Mr Pham entered into what he thought was a loan arrangement with the local rural bank, the terms of which are that after 10 monthly payments the bank would transfer title to the shelters to Mr and Mrs Pham. The payments are still outstanding.
Answer all of the following:
Q1. Explain how the trustees of the fund have breached the SIS Rules?
Q2. Could the fund purchase the property from the Mr and Mrs Pham? Explain the legal basis on which the fund could purchase the property?