The ATO introduced a new penalty regime from 1 July 2014 to ensure that it had the power to issue a wider range of penalties to trustees of self-managed superannuation funds (SMSF) that are in breach of the superannuation laws. For anyone with an SMSF, being aware of your responsibilities is the best way to minimise the risk of costly penalties.
Prior to 1 July 2014, the ATO did not have any scope when it came to dealing with minor breaches. Penalties such as disqualifying a trustee or applying to a court to have civil penalties imposed was found to be time consuming, costly and usually not efficient to implement and review.
Under the new laws introduced, the ATO now has greater flexibility to deal with issues of non-compliance by the trustees of a SMSF. These include:
- rectification directions for contraventions of superannuation law
- education directions
- a penalty regime for certain contraventions of the SIS Act
As a trustee, if you are issued with a rectification direction, you are required to undertake specific action to rectify the contravention. There is usually a time frame for rectification and you must provide the ATO with evidence of compliance with the direction given.
An education direction requires a trustee to undertake a specified course of education. Again, there is usually a time frame for completion and the ATO must be provided with evidence of successful completion of the course.
If an administrative penalty is imposed, it is important to note that it must be paid personally by the trustee, or director of a trustee company, and cannot be reimbursed by the SMSF. Some of rules breached and the penalties that apply include:
- failure to prepare Financial Statements – $1,700
- providing financial assistance, or loans, to members and their families – $10,200
- failure to notify the ATO of a change of status eg ceasing to be a SMSF – $3,400
- failure to comply with an ATO directive – $850
Whilst some of the financial penalties may seem excessive, these penalties are a much better option than facing a penalty tax and losing half of your SMSF assets, which was about the only “big stick” financial option previously available. For more serious compliance breaches, the ATO still has access to their previous powers such as taking you to court to impose civil or criminal penalties.
The ATO has great resources including some short videos, which set out aspects of the roles and responsibilities for trustees and directors of a trustee company.
Once a breach has been reported and it is subject to administrative penalties, there is absolutely no way that the financial penalty imposed can be avoided. Penalties can be imposed on all trustees or directors of a corporate trustee or on individual trustees or directors where there are a number of trustees/directors. Objections are the same as for tax objections. An objection must be lodged within 60 days after the notice has been served and it must state in detail the grounds of your objection.
As a SMSF trustee, compliance of a super fund is not something that should be taken lightly. Even if you receive no direct benefit in being a trustee of a SMSF, and consider yourself only to be a “signatory”, you still have a role and responsibility to ensure that the super fund complies with the super rules.
If you would like to discuss any issues raised in this article, or would like further information on how you can set up your own SMSF, please contact us.