August 13, 2014

SMSF Trustee Alert – New Penalty Regime

From 1st July 2014, a new penalty regime for self-managed superannuation funds (SMSFs) means that any breach reported in an auditor contravention report could result in fund trustees personally facing hefty fines.

The new regime extends the Tax Office’s powers to enforce regulations for smaller breaches instead of making a fund non-compliant, disqualifying trustees, or having to resort to the courts. The Commission will now have greater flexibility in dealing with SMSF non-compliance by issuing:

  • Rectification directions for contraventions of the superannuation law;
  • Education directions to trustees of the SMSF;
  • An administrative penalty regime for SMSF trustees for certain contraventions of the SISA.

A rectification direction will require a trustee to undertake specified action to rectify the contravention within a specified time, and provide the ATO with evidence of compliance with the direction.

An education direction will require a trustee to undertake a specified course of education within a specified time frame, and provide the ATO with evidence of successful completion of the course.

Where an administrative penalty has been imposed on a trustee, the trustee must pay the penalty and the trustee is prohibited from being reimbursed from the assets of the SMSF. Further, the ATO will impose the administrative penalty on each trustee personally. In the case of two individual trustees, each trustee would receive an administrative penalty. Where there is a corporate trustee, the ATO will only impose a single administrative penalty.

The following is a listing of the administrative penalties. It is now more important than ever to understand that as a trustee of your SMSF you are ultimately responsible for the prudent management of your super fund.

SISA Section Rule Administrative Penalty
s35B Failure to prepare Financial Statements $1,700
s65 Lending or providing financial assistance to members and their relatives $10,200
s67 Super fund borrowings, outside the permitted exemptions (eg limited recourse borrowing arrangement). $10,200
s84 Trustees have not taken reasonable steps to comply with the in-house asset restrictions. $10,200
s103(1) & (2) Failing to keep trustee minutes for at least 10 years. $10,700
s.104 Failing to keep records of change of trustees for at least 10 years. $1,700
s.104A Failing to sign Trustee Declaration within 21 days of appointment and keeping for at least 10 years. $1,700
s.105 Failing to keep member reports for 10 years. $1,700
s.106 Failing to notify ATO of an event that has significant adverse effect on the super fund’s financial position. $10,200
s.106A Failing to notify ATO of change of status of SMSF, eg super fund ceasing to be a SMSF. $3,400
s.160 Failing to comply with ATO Education directive $850
s.245(1) Failing to provide the Regulator with information on the approved form within the prescribed time upon establishment of the super fund. $850
s.347A(5) Failing to complete a form with requested information provided by the Regulator as part of the Regulator’s Statistical Program. $850
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