New Penalty Regime for SMSF

ATO Administrative Penalties to become law

On December 14 2013 the Government announced they will proceed with Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012, which introduces new sections to the Superannuation Industry (Supervision) Act 1993 (SIS Act).

The new measures to come into effect on 1 July 2014 (original start date was 1 July 2013) provide the ATO with greater powers to levy penalties for breaches of the law; including education directions for SMSF Trustees who contravene the Superannuation provisions and an administrative penalty regime.

The education measure will require Trustees to undertake specific remedial training in compliance, to gain a better understanding of their obligations and responsibilities and prevent them breaching the law in the future.

The administrative penalty regime will fine Trustees for breaches of Superannuation law which, in previous years, have escaped punishment. Where an administrative penalty is imposed, it must be paid personally by the Trustee or the Director of the Trustee Company and cannot be re-imbursed from the SMSF.

A contravention made on or after 1 July 2014 of any of the following sections of the SIS Act will automatically incur a financial penalty. A table of the breaches and corresponding financial penalties is provided below. The fines are based on penalty units, which is currently $170 per unit.

 

Breaches and Penalties

Section		Rule		Penalty Units	Penalty ($)
34(1)		Failure to comply with the prescribed standards to the operation of the Fund		20	$3,400
35B		Failure to prepare financial statements		10	$1,700
65(1)		Prohibition on lending or providing financial assistance to members and their relatives		60	$10,200
67(1)		Prohibition on super fund borrowing, except as permitted, e.g. limited recourse borrowing arrangement		60	$10,200
84(1)		Breach of In-House Asset rules		60	$10,200
103(1) & (2)		Failure to keep trustee minutes for at least 10 years		10	$1,700
103(2A)		Failure to retain an election under s71E for at least 10 years		10	$1,700
104(1)		Failure to keep records of change of trustees for at least 10 years		10	$1,700
104A(2)		Failure to keep Trustee Declaration for 10 years		10	$1,700
105(1)		Failure to keep member reports for 10 years		10	$1,700
106(1)		Failure to notify ATO of an event that has significant adverse effect on the fund’s financial position		60	$10,200
106A(1)		Failure to notify ATO of change of status of SMSF, e.g. fund ceasing to be a SMSF		20	$3,400
124(1)		Failure to make the appointment in writing where an investment manager is appointed		5	$850
160(4)		Failure to comply with ATO Education directive			$850
254(1)		Failure to give information to the ATO in the approved form		5	$850
347A(5)		Failure to complete a survey form		5	$850

 

Here are some examples taken from the Explanatory Memorandum that accompanied the Bill (the dates have been changed to reflect the later start date of this legislation).

Example 3.1: Corporate Trustee that contravenes a provision

Stuart and Alison are members and the Directors of a body corporate that is the Trustee of Green SMSF. Stuart and Alison fail to ensure that accounts and statements for Green SMSF are prepared for the 2014-15 year of income. As a result, the Corporate Trustee has contravened section 35B.

An administrative penalty of 10 penalty units is imposed on the body corporate that is the Trustee of the Green SMSF. Stuart and Alison as Directors of the body corporate become jointly and severally liable to an administrative penalty of 10 penalty units imposed on the body corporate.

Example 3.2: Individual Trustees that contravene a provision

Jill and Merryn are members and individual Trustees of Yellow SMSF. Jill and Merryn fail to ensure that accounts and statements for Yellow SMSF are prepared for the 2014-15 year of income. As a result, each individual Trustee has contravened section 35B.

An administrative penalty of 10 penalty units is imposed on each individual Trustee of Yellow SMSF in their personal capacity. Jill and Merryn are each liable to an administrative penalty of 10 penalty units.

Example 3.3: Director of Corporate Trustee that contravenes a provision

Marita and Peter become directors of a body corporate that is trustee of Blue SMSF. Peter fails to sign a Trustee declaration and contravenes subsection 104A(2).

An administrative penalty of 10 penalty units is imposed on Peter. Peter is liable to an administrative penalty of 10 penalty units.

Example 3.4: Individual trustees that contravene a provision

Cameron and Rohan are individual trustees of Red SMSF. Cameron fails to sign a trustee declaration and contravenes subsection 104A(2).

An administrative penalty of 10 penalty units is imposed on Cameron in his personal capacity. Cameron is liable to an administrative penalty of 10 penalty units.

The new ATO administrative penalty regime means SMSF Trustees must ensure they comply with the legislative requirements, otherwise hefty fines could ensue. If Trustees are unsure about a particular transaction or their obligations they should seek advice from a suitably qualified SMSF professional.

If you have any queries relating to these changes, please contact your Financial Adviser.

 

Source: SuperIQ