01/01/2013

Draft legislation introducing administrative and financial penalties for SMSF Trustees who misbehave and breach governing legislation has been released.  This new legislation once in force will be applicable to contraventions which occur from 1 July 2013.

The Governments proposed changes to the SIS Act would result in the ATO being further empowered to issue both administrative and financial penalties to SMSF trustees.  The rationale provided in the explanatory memorandum as to why these new penalties were required by the regulator is that following its Super System Review the Government found that “the existing penalty regime applicable to trustees of SMSFs limits” the ATO’s “ability to achieve optimal regulation of the SMSF sector”. 

Currently, the only weapons in the ATO’s arsenal are disqualification of a trustee, making a fund non complying and applying to the court system to impose a civil or criminal penalty.  Those actions do not offer the chance for reconciliation or rectification for the trustees; these new powers will do just that.  It will also avoid the need for the ATO to go through the court system to issue civil penalties.

A current moot point within the industry is that the individual trustees must pay the financial penalties and will be unable to be reimbursed by the fund for these fines.  This is all well and good for the funds who have individual trustees; however how will this work in practical terms for the funds who have a corporate trustee?

A rectification direction is self explanatory; the trustees must take corrective action as directed within the time specified by the ATO and provide evidence that the direction has been complied with to the ATO.

An education direction similarly, will require a course to be completed within a specific timeframe, with the trustees signing or re-signing that they understand the obligations of acting as a trustee of an SMSF.

Trustees will be able to appeal any penalty issued by the ATO through the Administrative Appeals Tribunal.

If you need assistance or have any questions in relation to this article, please contactTOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.