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SMSF Trustee Penalty Regime

What happens if you fail in your trustee duties?

As a SMSF trustee, if you fail to act in accordance with the super and tax laws then you risk:

  • Your SMSF becoming non-complying and losing its tax concessions
  • Disqualification, removal or suspension as a trustee of the SMSF
  • Civil or criminal prosecution
  • Financial penalties.

Furthermore, if you fail to act in accordance with your SMSF trust deed, other impacted members of the SMSF may take legal action against you.

SMSF Trustee Penalty Regime

The new penalty regime for SMSF trustees will now proceed according to a recent announcement made by Assistant Treasurer Arthur Sinodinos. The new laws will give the ATO (the Regulator of SMSFs) power to issue a range of penalties to trustees of SMSF that breach the superannuation laws from 1 July 2014.

Currently, the Commissioner of the ATO only has the following options when dealing with a SMSF non-compliance issue:

  • Accepting an enforceable undertaking in relation to a contravention
  • Making a SMSF non-complying for taxation purposes (i.e. loss of tax concessions)
  • Applying to a court for civil penalties to be imposed
  • Disqualifying a trustee of an SMSF.

There is no scope to deal with minor breaches of SISA, as all of the above measures are time consuming, costly and generally inefficient to implement and review.

If the new measures are implemented as announced, the Commissioner 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 is imposed it must be paid personally by the trustee or the director of the trustee company and cannot be paid or reimbursed by the SMSF.

Some of the proposed penalties include:

 

SISA Section Rule Administrative Penalty

s35B

Failure to prepare Financial Statements

$1,700

s65

Lending or providing financial assistance to members & their relatives

$10,200

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

 

 

 

 

 

 

 

For more serious compliance breaches or where a SMSF continues to breach the law, the ATO still has access to its existing powers.

 

 

 

 

 

 

 

For further information about this article, please feel free to contact Paul Rafton 3237 5952.

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