Severe penalties can be imposed against trustees for failing to act appropriately. One of the prudential requirements of superannuation funds operations is that the fund is not used for personal purposes.
One such rule is that a loan to a member, or a withdrawal without any of the eligibility requirements being met, is prohibited.
In a recent case, the trustees were given a civil penalty of $15,000 for making a loan of $75,000 to a member who got into financial difficulties and "borrowed" from the self managed superannuation fund.
Whilst the borrowing may have solved the short term cash flow problem for the member, the message is clear, superannuation is for retirement benefits only and penalties can be quite significant.
Not only was the penalty imposed significant, but it was also less than the potential one of non-complying status, which would have imposed an even greater tax on the superannuation fund.
If the fund had been wound up by the trustees hoping to prevent this harsher penalty, the Tax Office have found a way around it.