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Tara Fowler

Nov 26, 2020

SMSF can it be sued by a private company and can they claim legal fees?

in SMSF Technical Forum

SMSF has been brought into a class action where a private company is suing its shareholders. SMSF are not related parties to the private company and hold shares worth $120k at 30 June 2019, there is no loan for the acquisition of these shares. The SMSF receives dividends each year from the company, it is not an in-house asset.

Can the SMSF pay the legal fees incurred to join a case to prevent the company from suing the SMSF and claim them as a tax deduction? (the members may not be able to fund the legal fees personally).

Can the company sue the SMSF - will they be only liable for the cost or market value of the SMSF?

Is there anything the SMSF can do to protect its asset?

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Feb 14, 2021

Hi Tara,

Yes a SMSF could pay legal fees to join a case to prevent the company from suing the SMSF. If the legal fees were incurred in relation to the continued receipt of income (i.e. dividends) then they would be deductible. If they were incurred to preserve the capital investment they they would not be deductible and the expense would be capitalised. I would expect they would be deductible but would need more information in relation to the dispute.

Yes the company could sue the SMSF. If the trustees of the SMSF were to be sued for damages the best trustee structure is to have a company rather than individuals as trustee of the Fund. A company offers the advantage of having limited liability. If there is a company as trustee of the SMSF any liability should be limited to the assets of the Fund. If the trustees are individuals then they could be personally liable if the Fund was sued & there was insufficient assets to pay an amount the Fund / they are legally required to pay.

SMSF AAA