Only a few months left to fix problems

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    4/3/2014 3:59PM

    Only a few months left to fix problems

    From 1 July 2014, the new penalty regime is scheduled to commence for self-managed superannuation    funds (SMSFs). This means that any breach reported in an auditor contravention report (or discovered in an ATO audit) could result in fund trustees personally facing significant fines. This penalty regime was due to start on 1 July 2013, but it was delayed due to the election, with the new government now proceeding with its implementation.


    Given that the penalty regime is set to begin in a few months, trustees only have a small window of opportunity to fix any issues they may have.

    Under the new rules, the Tax Office will be able to directly fine SMSF trustees, and potentially complicit accountants and advisers, for compliance breaches.


    The Tax Office will now have a number of options when a trustee breaches the regulations:


    Rectification direction

    • may be given if ATO reasonable believes an SMSF has contravened Act or Regulations
    • The ATO will have regard to the seriousness of the contravention and the level (if any) of the financial detriment that might be reasonably expected to be suffered by the fund.


    Education Direction

    • may be given if ATO reasonably believes an SMSF has contravened Act or Regulation
    • Appropriate where  trustees’ lack of knowledge contributed to breach
    • Trustee will need to provide ATO with evidence of completion of the course


    Penalty paid

    • If individual trustees – Then each Trustee will incur a penalty e.g. Failure to  keep records of change of trustee – 10 penalty units each individual
    • If corporate –  The directors are jointly and severally liable e.g. failure to record trustee change – 10 penalty units on company
    • If individual contravenes  – Individual member pays penalty e.g. Trustee declaration not signed – 10 penalty units
    • SMSF cannot pay or reimburse the penalty
    • Administrative Penalties – Not applied to all contraventions, only ones listed in table subsection 166(1)


    The penalty paid is calculated on a set number of “penalty units”, dependant on the breach. The value of a penalty unit is set out in the Crimes Ac 1914 and may change from time to time. The current value of 1 penalty unit is $170.

    Section Rule Penalty
    35B Financial Statements not prepared $1,700 (10 penalty units)
    65 Prohibited from providing financial   assistance to a member $10,200 (60 penalty units)
    67(1) Prohibition on super fund borrowing,   except as permitted, eg limited recourse borrowing arrangement $10,200 (60 penalty units)
    84 Contravention of In-House Asset rules $10,200 (60 penalty units)
    106 Failing to notify ATO of an event that   has significant adverse effect on the fund’s financial position $10,200 (60 penalty units)
    106A Failing to notify ATO of change of   status of SMSF, eg fund ceasing to be a SMSF $3,400 (20 penalty units)
    103(1) Failing to keep books and  records    for at least 10 years $1,700 (10 penalty units)
    103(2) Failing to keep trustee minutes  and records of decisions for at least 10   years $1,700 (10 penalty units)
    103(2A) Failure to maintain a s.71E election,   where applicable, in relation to a fund with an investment in a pre 11/8/99   related unit trust $1,700 (10 penalty units)
    104 Failing to keep records of change of   trustees for at least 10 years $1,700 (10 penalty units)
    104A Failing to sign Trustee Declaration   within 21 days of appointment and keeping for at least 10 years $1,700 (10 penalty units)
    105 Failing to keep member or beneficiary   reports for 10 years $1,700 (10 penalty units)
    124 Where an Investment Manager is   appointed, failing to make the appointment in writing $850 (5 penalty units)
    160 Failing to comply with ATO Education   directive $850 (5 penalty units)
    254(1) Failing to provide Commissioner with   information in the approved form $850 (5 penalty units)
    347A(5) Failing to complete a form with   requested information provided by the Regulator as part of the Regulator’s   Statistical Program $850 (5 penalty units)

    The application of the ATO penalties and rectification actions are determined by the ATO and will depend on the specific circumstances. You should contact your administrator and/or auditor should you be concerned about any matter involving your SMSF(s) and compliance with the rules.