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New ATO Penalty Regime for SMSFs

Aug 8, 2014

The ATO has recently been handed new powers to compel compliance by Self-Managed Super Fund (SMSF) trustees with their duties and obligations.  These are in addition to existing powers and commenced on 1 July 2014.

The new regime allows the ATO to issue:

  • A Rectification Notice – this requires specific action be taken by the trustee within a specified time frame to rectify a contravention.
  • An Education Notice – this requires a person to undertake a specified course of education within a certain time, and give the ATO evidence of completion. No fee may be charged for the course and any cost incurred in undertaking the course cannot be reimbursed or paid from the fund – trustees must pay the costs out of their own pockets.
  • An Administrative Penalty Notice – for breaches of certain sections of the SIS Act, a penalty notice may be issued to either individual trustees or a corporate trustee.
Prescribed operating standards Sec 34(1) 20 penalty units $    3,400
Prepare accounts and statements Sec 35B 10 penalty units $    1,700
Lending to members Sec 65(1) 60 penalty units $  10,200
Fund borrowing Sec 67(1) 60 penalty units $  10,200
In-house asset rules Sec 84(1) 60 penalty units $  10,200
Keep records & minutes for 10 years Sec 103 10 penalty units $    1,700
Keep Sec.71E election for 10 years Sec 103(2A) 10 penalty units $    1,700
Keep change of trustee records for 10 years Sec 104(1) 10 penalty units $    1,700
Keep trustee consent for 10 years Sec 104A(2) 10 penalty units $    1,700
Keep members’ statements for 10 years Sec 105(1) 10 penalty units $    1,700
Notify Regulator if unable to pay benefits Sec 106(1) 60 penalty units $  10,200
Notify Regulator if fund no longer SMSF Sec 106A(1) 20 penalty units $    3,400
Investment manager not appointed in writing Sec 124(1) 5 penalty units $       850
Non-compliance with education direction Sec 160(4) 5 penalty units $       850
Required info not given to Regulator Sec 254(1) 5 penalty units $       850
Regulator survey is not completed Sec 347A(5) 5 penalty units $       850

While the first two of these are likely to impose additional costs and time requirements on trustees, it is the third that will cause the most anxiety because it is likely to be the one which is used most often by the ATO.  We have included a table below which lists the penalties.The new powers have also been the subject of articles published in the mainstream media in recent weeks – The Australian Financial Review and the Sydney Morning Herald, for example.

What the new regime means for Trustees

  • Any administrative penalties imposed on trustees cannot be reimbursed or paid from the Fund – trustees must pay the penalties out of their own pockets.
  • The ATO has no discretion to reduce or withhold the penalties meaning even inadvertent or accidental breaches will attract a penalty.
  • Where a SMSF has individual trustees the ATO will impose a penalty on each individual trustee meaning the penalty will be multiplied by the number of trustees. Corporate trustees will incur only 1 penalty.

The new penalties will likely be generated from the fund’s audit report and auditors will be obliged to notify the ATO of any non-compliance.

The message is that trustees must be even more vigilant in their record keeping and in the transactions which the fund undertakes. If you are ever in doubt about a transaction or investment you are about to undertake in your SMSF please do not hesitate to contact us first.

Also, one way to reduce potential penalties is to appoint a corporate trustee now to avoid the possibility of multiple penalties.

Please contact Mark Mackenzie on (07) 5492 0300 for more information and/or a quote if you would like to change over to a company as Trustee of your Fund.

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