31/03/2014

New laws give the tax office much more flexibility when it comes to penalising super fund trustees for behaviour which is contrary to the law.

Previously the ATO were limited to just making the fund non-compliant – a drastic solution for relatively minor breaches of the law.

From 1 July 2014 the ATO has the power to direct SMSF trustees to undertake education and or to impose administrative penalties or fines.

The important thing to be aware of is that the new laws distinguish between the way some fines are levied when it comes to individual trustees and corporate trustees for an SMSF.

This may be a critical time for any fund which has individuals acting as the trustee of their SMSF to seriously consider their position.

Examples outlined in the Explanatory Memorandum show the difference in treatment for individual and corporate trustees when a contravention has occurred and a penalty is imposed.

So if a penalty is imposed on the Trustee, where the trustee is a company the penalty is imposed on that company.

But if there are individual trustees the penalty is imposed on each trustee.

Let’s look at a couple of examples

Under Commonwealth legislation a ‘penalty unit’ is currently $170.

If a trustee does not retain minutes of meetings for at least ten years and contravenes s103(2) the ATO under this new law can impose 10 penalty units on the Trustee, which equates to $1,700.

If the trustee is a company that means a fine of $1,700. But if the SMSF has four individuals acting as trustees the total fine will be $1,700 x 4 = $6,800.

And remember that the fine cannot be paid from the super fund’s assets but must be paid by the trustees personally.

A major breach of the SIS Act could attract a fine of $10,700.  So a couple who act as trustees of their own fund could face a whopping $21,400 payable from their own money.

Individual trustees may want to consider whether they should appoint a company in their place.

There is of course a chance that first time offending trustees may receive an education direction instead of financial penalties but it is clearly time to have the conversation; is it really worth the risk?

If you would like to change the trustee of your superannuation fund click here.