ATO gains new powers to penalise non-compliant SMSF trustees

Self-managed superannuation fund (SMSF) trustees take note! From 1 July 2014 the Australian Taxation Office (ATO) will have new powers to impose penalties on superannuation trustees and will not be afraid to use them, warns Krishna Skandakumar, a lawyer at DBA Lawyers.

He says the recently passed Tax and Superannuation Laws Amendment (2014 Measures No.1) Act 2014 has given the ATO three new powers to allow it to more “effectively, flexibly and proportionately” address non-compliance issues with superannuation laws.

Skandakumar says the new powers, which apply to both the trustee of an SMSF or a director of a corporate trustee, aim to address the short-comings of the previous penalty regime. These included the ATO having a limited set of penalties it could use and that these were are on the “harsher” end of the spectrum.

“The ATO recognised that many trustees of SMSFs avoid sanctions simply by rectifying the conduct as the remedy available is considered disproportionately high to the non-compliance issue,” says Skandakumar.

“However, the new penalty powers include ‘graduated’ penalties that will allow the ATO to provide a measured response to a contravention of superannuation law.”

Broadly, the ATO will have three additional new powers at its disposal from 1 July. These are:

1. Rectification directions:

These will require the trustee of an SMSF to undertake a specific action to rectify a contravention within a specific timeframe. Non-compliance will attract a financial penalty (of $1,700).

“In determining whether to issue a rectification direction, the ATO must first consider the financial detriment that might be suffered by the fund as a result of compliance with the direction, the nature and seriousness of the person’s contravention and any other relevant circumstances,” says Skandakumar.

“Unlike other penalties, a rectification direction cannot be given where the ATO has already accepted an enforceable undertaking in relation to a particular 

2. Education directions:

These will require the trustee of an SMSF to undertake a specific course of education within a specified timeframe. If this is not completed within the specified timeframe, a financial penalty will apply (again $1,700). And, the trustee cannot pay for, or reimburse, any costs associated with the course from the assets of the SMSF.

3. Administrative penalties:

These, the most significant addition to the ATO’s powers, apply to specific contraventions and will result in the trustee of an SMSF being personally liable to pay a financial penalty ranging from $850 to $10,200, depending on which provision of the Superannuation Industry (Supervision) Act 1993 is contravened. Importantly, all costs of an administrative penalty cannot be paid for, or reimbursed from, the assets of the SMSF.

Skandakumar observes: “How the new scheme of penalties will be applied in practice remains largely unknown. However, the Explanatory Memorandum to the Act suggests that the ATO has sought a wider range of penalties that are not as severe as making an SMSF non-complying or disqualifying a trustee, and so on. Accordingly, it seems that these penalties may just be the ‘teeth’ that the ATO was after.”

The ATO says the penalties will apply to contraventions made prior to 1 July 2014 and continue after that date. For example, if your fund has lent money to a member or relative and the loan still exists on or after 1 July 2014, you, and each individual trustee, will be personally liable a penalty of $10,200.

“The loan should immediately be repaid to the fund with appropriate commercial interest,” the ATO advises.

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