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Review funds now or be penalised later

Review funds now or be penalised later

Commencing from 1 July 2014, the ATO will have a broad range of graduated penalties and administrative directions at its disposal to address any non-compliance of the superannuation laws - in addition to its existing powers.

The ATO has rarely used its existing range of powers except in cases of significant non‑compliance because the potential consequences are considered “disproportionately high”. This has meant that a number of SMSF trustees have effectively avoided sanction for contravening the law simply by rectifying the conduct when it is detected. This has not provided sufficient encouragement for voluntary compliance.

However, the new rules introduce a system of administrative directions and penalties for contraventions relating to SMSFs that occur on or after 1 July 2014, including:

  • · providing the ATO with powers to give rectification directions and education directions; and
  • · imposing administrative penalties for certain contraventions of the law

Penalties imposed under the new administrative penalty regime are payable personally by the person who has committed the breach and therefore must not be paid or reimbursed from assets of the SMSF.

It is important to review all SMSFs prior to 30 June this year to minimise the risk of attracting these penalties.

An administrative penalty is not imposed for all contraventions of the SIS Act, only those included in a table contained in the legislation – summarised as follows: 


SISA Section Rule Administrative Penalty


Failure to prepare Financial Statements



Lending or providing financial assistance to members & their relatives


s67 Super fund borrowings, outside the permitted exemptions (e.g. limited recourse borrowing arrangement) $10,200
s84 Trustees have not taken reasonable steps to comply with the In House Asset Restrictions $10,200
s.103(1) & (2) Failing to keep trustee minutes for at least 10 years $1,700
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, e.g. super fund ceasing to be a SMSF $3,400
s.160 Failing to comply with ATO Education directive $850
s.254(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

Note - Some contraventions only occur in the year of income a particular transaction took place.  However, certain transactions, if not rectified, may cause trustees to contravene the SIS Act or SIS Regulations over a number of income years. 

For example:

SMSF trustees are prohibited from borrowing money or maintaining an existing borrowing of money, except in limited circumstances. Therefore, trustees may contravene this provision in the year of income that the borrowing is undertaken and for each year of income the borrowing is maintained in breach of the rules. Hence, any existing Limited Recourse Borrowing Arrangements ought to be thoroughly examined and independently audited to ensure no carry over contraventions arise.

Similarly, where the market value of a fund’s in‑house assets exceeds the five per cent threshold, the trustees are required to prepare a written plan before the end of the following income year and carry out steps to ensure that the Fund’s in‑house asset ratio returns to five per cent or less.

Source  Darren Kingdon Director Kingdon Financial Group

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