What SMSF trustees need to know about the new ATO penalties

What SMSF trustees need to know about the new ATO penalties

Up until recently, the Australian Tax Office (ATO) had very few arrows in its quiver to ensure SMSF trustees complied with the law. Where contravention of the law occurred, the ATO could do little other than apply to a court for penalties to be imposed, disqualify a trustee of an SMSF, or deem the SMSF non-compliant and therefore have both the assets and income of the fund taxed at the highest marginal rate.

Because of the severity of these penalties, the ATO only exercised these powers in the most extreme circumstances – which therefore did not discourage trustees from inappropriate behaviour.

The Government has now enacted a number of reforms to rectify this issue. The new penalty powers apply from 1 July 2014, and are in addition to the current penalties that can already be applied.  

There are three types of new penalties that can be imposed:

  1. A requirement to undertake an education course to improve your knowledge of self-managed superannuation funds. This course must be completed within a specified time frame or another financial penalty will apply. Evidence must be provided to the ATO upon completion of the course. At the time of writing, the ATO has only approved one education course for SMSF trustees.
  2. A requirement to rectify any breaches of the superannuation rules that your fund has not complied with. Again, this action must be done within a specified time frame and evidence of the rectification must be provided to the ATO.
  3. Administrative penalties involving fines, which range from $850 for minor matters through to $10,200 for more serious matters. This is the most significant new penalty.

Note that the new fines:

  • are applied separately to all individuals who are trustees, which can be up to four times the standard penalty. If the SMSF has a corporate trustee, only one penalty is imposed and all the directors of the trustee are jointly and severally liable for any fines – this is another great reason to have a corporate trustee. Find out more about the differences between individual and corporate trustees in our blog post here.
  • cannot be reimbursed from the fund
  • can be remitted by the ATO – which will depend upon the circumstances of each case. Factors taken into consideration include any previous breaches of the rules, likelihood of breaches occurring in future, or recklessness of the trustees.

Whether you rely on your accountant, financial adviser or auditor, please remember that it is up to you to ensure your SMSF complies with the rules. If they identify a breach you should ensure that (where possible) it is corrected or the likelihood of its occurring in the future is eliminated. If you believe that your fund may have fallen foul of the rules or you’re just not sure about them, make sure you call your adviser to discuss. These new rules are another good reason to contact your adviser to discuss any actions taken in relation to your super fund before you do anything.

While these new penalties may seem harsh, it’s definitely better than the previous alternative (that is, being taxed at the highest marginal rate on both income and assets) and I believe that encouraging trustees to be more aware of the rules and responsibilities using these milder methods is a move in the right direction. 

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