Up until 30 June 2013, if a SMSF contravened certain provisions of the Superannuation Industry (Supervision) Act 1993 (“SIS Act”), the ATO had the following options available to deal with the non-compliance:
- Making the SMSF non complying for tax purposes – this exposed the trustees to potential severe monetary penalties as well as causing the fund to pay tax on the taxable portion of the benefits held at a rate of 45%.
- Apply to a court for civil penalties to be imposed.
- Impose an enforceable undertaking on the trustees/members pertaining to the contravention.
- Disqualifying a person or persons from acting as trustees of a SMSF.
- The problem with the above penalty regime was that it was too severe and was difficult to equate the severity of the penalty with the contravention. This resulted in the ATO imposing the penalties infrequently and only for the most serious contraventions.
The expanded penalty regime goes some way to rectify this by allowing the ATO to now:
- Issue rectification and education directives to trustees of SMSF; and
- Impose an administrative penalty regime for trustees for certain contraventions of the SIS Act.
Where an administrative penalty has been imposed on a trustee, the trustee must pay the penalty and the trustee is prohibited from being reimbursed from the assets of the SMSF. Further, the ATO will impose the administrative penalty on each trustee personally. In the case of two individual trustees, each trustee would receive an administrative penalty. Where there is a corporate trustee, the ATO will only impose a single administrative penalty.
While we do not envisage your fund contravening the SIS Act, it may be worth contemplating switching from individual trustees to a corporate trustee.
The following is a listing of the administrative penalties: