Starting from July 1 2014, Self-Manager Super Fund (SMSF) trustees will have to step up their game with the Australian Taxation Office soon to be able to issue financial penalties to trustees who contravene superannuation laws.
Currently, if a trustee gets something wrong or makes a mistake, the ATO only has “all or nothing” options available for penalties. This includes making the SMSF non-complying, or applying for civil or criminal penalties. To be more specific, the ATO has four main ways to deal with rule breakers including: make a SMSF non-complying for tax purposes, apply to the court for civil penalties to be imposed, accept an enforceable undertaking in relation to a breach or disqualify a trustee. However, many trustees avoid sanctions by rectifying through contravention which makes the current penalty options somewhat redundant.
From July 1, the ATO will have new administrative penalties and will be able to issue fines. This is a new move from the ATO to combat trustees doing the wrong thing with their SMSFs. For example, if you fail to keep the required records such as for a change of trustees or improper preparation of financial statements, this could attract a fine of $1,700. There will be a $3,400 fine for failure to comply with contributions and preservation rules and an estimated $10,000 fine for not complying with “in house” asset restrictions.
This new penalty regime is much simpler for the ATO and will be more efficient in penalising rule and law breakers. Many believe the old way was outdated and ineffective. It is estimated the ATO will collect an extra $150 million a year in fines under this new regime. It is believed the ATO is unlikely to use its existing range of powers except in cases of significant non-compliance.
Along with the fines, the ATO will also be able to issue a “rectification direction”. This requires trustees to take specific actions to fix a contravention within a time frame. If the trustee doesn’t comply, they can be fined $850. The ATO will also introduce an “education direction”. Through this initiative, trustees can do a specific course of education within a timeframe. If the education course is not completed within the set time frame, the ATO can issue a fine of $850. The penalties must be paid out of the trustees’ back pockets and they are directly responsible for paying any fines. The ATO will be alerted of breaches through an auditor’s contravention report and will impose the penalties once made aware of the breach from July 1.
A recent survey released by the ATO found approximately 2% of all SMSFs received an auditor contravention report for SMSF contraventions. That equates to around 19,000 separate instances of trustees breaching the law. The top contraventions to date include: loan to members, in house assets, separation of assets, administrative, operating contravention, borrowing, sole purposes, arms-length investment, related party acquisition and other.
For any further information on these new penalties and changes, please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
