From 1 July 2014 the ATO introduced a new range of penalties which can be applied on SMSF Trustees when breaches of the superannuation rules occur. From our experience in dealing with the ATO this year, they are very focused on trustees who repeat the same contravention.
Penalties will be payable by trustees or the directors of the trustee company on a joint and severable basis who committed the breach and the penalty cannot be reimbursed by the SMSF i.e. the penalty will impact the trustee’s back pocket, not the super fund.
Penalties
Penalties range from 5 penalty units up to 60 penalty units. From 1 July 2014 until 30 July 2015, each penalty unit equates to $170. For example, if a SMSF trustee failed to sign a SMSF trustee declaration, he or she could be fined 10 penalty units, that is $1700. From 31 July 2015 onwards, each penalty unit equates to $180. For example, if the trustees of a 2-member fund fail to prepare financial statements for the fund , this means the 2 trustees can be fined $1800 each. The maximum administrative penalty for a single breach is $10,800, and such a fine would apply where, for example, a SMSF trustee breached the borrowing rules, or the in-house asset rules.
Rectification Powers
The ATO will have the power to force you to rectify specific contraventions. According to the explanatory memorandum accompanying the legislation, the ATO can give a ‘rectification direction’ to an SMSF trustee that “will require a person to undertake specified action to rectify the contravention within a specified time frame and provide the Regulator with evidence of the person’s compliance with direction.
Mandatory Trustee Education
If you’re a naughty SMSF trustee in the eyes of the ATO, you can be forced to attend mandatory trustee education, when the ATO gives you an ‘education direction’. The ATO can give an ‘education direction’ that “will require a person to undertake a specified course of education within a specified time frame and provide the Regulator with evidence of completion of the course.” You will also be required to sign, or re-sign the SMSF trustee declaration to confirm that you understand your obligations and duties as a trustee.
Although the size of some of the financial penalties that are now possible may surprise you, these penalties are a better option than losing half of your SMSF assets via penalty tax, which until 30 June 2014 was about the only ‘big stick’ financial option available to the ATO. Note the regulator also can currently disqualify you as an SMSF trustee, and force you to fix a breach, and even take you to court to impose civil or criminal penalties. The ATO can continue to impose these more severe penalties but is now more likely to impose financial penalties when trustees breach the super laws.