From 1 July, 2014 The ATO has greater power in dealing with trustees who break the law via their self-managed superannuation fund. The ATO can now apply administrative penalties to the trustees, specify a particular course of action to rectify a contravention or instruct the trustees to undergo training.
Trustees must understand that any administrative fines are penalised upon the trustee and not the SMSF. This means that the trustees are personally liable for the payment of the penalty and are not able to use the assets of the fund to pay or reimburse themselves the penalty. Additional penalties apply where trustees do pay from the fund.
The penalties range from 5 penalty units to 60 penalty units with each penalty unit currently worth $170. So, failing to appoint an investment manager in writing could cost a trustee $850 but a fund borrowing money (outside the Sec 67A exception) is going to make the trustees liable for a penalty of $10,200.
It’s important to keep in mind that, although contraventions occurring from 1 July 2014 attract these penalty units, it’s not limited to new contraventions. Where a contravention has occurred prior to July 2014 and hasn’t been rectified, the previous contravention still exists as at that date. Of course, that means the new penalty regime applies to that contravention. The ATO may remit penalties where the trustees are making progress as at 1 July 2014 in rectifying these prior contraventions.
The ATO can instruct the trustees to rectify a contravention within a defined period and via a specific means, although they may also accept undertakings from trustees in alternate ways to correct the contraventions. If the trustees fail to implement the ATO’s directions within the time required, 10 penalty units may be applied, ie. a $1,700 fine.
Educational requirements may also be enforced upon trustees who cause their fund to breach legislation. The ATO can insist a trustee complete a specified approved training course within a particular time period and provide evidence of its completion. Once again, failure to complete the course in the prescribed time may mean a fine of 10 penalty units.
It is vital trustees ensure their self-managed superannuation fund remains compliant with all legislation. Of course, that’s always been the case, but the financial effects on trustees of a legislative breach are now higher than ever. Trustees would benefit from a trusted professional to assist in their fund management. A good accountant, advisor or planner may often be able to point out where a proposed transaction may fall afoul of the ATO. Under the new penalty regime, it’s important to be aware of all fund transactions as they occur and their repercussions.