SMSF Trustee Penalty Regime

By 21 March 2014SMSF

On 6 March 2014, the Tax and Superannuation Laws Amendment (2014 Measures No.1) Bill 2014 passed through both houses of parliament, and is currently awaiting Royal Ascent. The Bill gives effect to a new penalty regime for trustees of Self Managed Superannuation Funds.

Designed to encourage and ensure trustee compliance with the SIS Act, the regime commences 1 July 2014 and subjects trustees to monetary penalties, mandatory education and rectification directions if found in breach of the SIS Act.

Monetary Penalties

An administrative penalty is imposed for breach of the Act and must be paid personally by the trustee or the director of the trustee company and cannot be paid or reimbursed by the fund.

The table below illustrates the administrative penalty that applies to a breach of the relevant sections of the Act.  The fines are based on penalty units, which are currently $170 per unit.

 Section

 Rule

 Penalty Units

 Penalty ($)

 34(1) Failure to comply with the prescribed standards to the operation of the Fund 20 $3,400
35B Failure to prepare financial statements 10 $1,700
 65(1) Prohibition on lending or providing financial assistance to members and their relatives  60  $10,200
 67(1) Prohibition on super fund borrowing, except as permitted,e.g. limited recourse borrowing arrangement  60  $10,200
84(1) Breach of In-House Asset rules 60 $10,200
103(1)& (2)  Failure to keep trustee minutes for at least 10 years  10  $1,700
 103(2A) Failure to retain an election under s71E for at least 10 years  10  $1,700
 104( 1) Failure to keep records of change of trustees for at least 10 years 10  $1,700
104A(2) Failure to keep Trustee Declaration for 10 years 10 $1,700
105(1) Failure to keep member reports for 10 years 10 $1,700
 106(1) Failure to notify ATO of an event that has significant adverse effect on the fund’s financial position  60  $10,200
 106A(1) Failure to notify ATO of change of status of SMSF, e.g. fund ceasing to be a SMSF  20  $3,400
 124(1) Failure to make the appointment in writing where an investment manager is appointed  5  $850
160(4) Failure to comply with ATO Education directive 5 $850
254(1) Failure to give information to the ATO in the approved form 5 $850
347A(5) Failure to complete a survey form 5 $850

 Mandatory education

Trustees may be required to undertake specific remedial training in compliance, to gain a better understanding of their obligations and responsibilities as Trustees and prevent them from breaching the law in the future. The education required to be undertaken is at the cost of the trustees, we are not aware of any providers that will carry out such education free of charge.

Rectification directions

Trustees may be required to undertake a specified course of action to rectify a contravention within a specified time frame and provide the ATO with evidence of their compliance with the direction

Conclusion

It is imperative, that trustees who may currently be in breach of the Act ensure that any breaches are fully rectified prior to the commencement of this regime on 1 July 2014 to ensure they avoid penalties under this regime.

If you are currently in breach of the Act, would like your fund reviewed to ensure compliance with the Act or have any questions in relation to this Regime, don’t hesitate to contact us today.

Author David McKellar

David McKellar is a Chartered Accountant and Director of Allied Business Accountants, an accounting firm specialising in providing strategic advice and taxation services to business owners, investors and Self Managed Superannuation Funds.

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