From the Institute of Chartered Accountants

The Self Managed Super Fund (SMSF) administrative penalties draft regulation gives the Australian Taxation Office (ATO) the power to issue administrative directions (rectification direction or trustee education directions) and impose penalties for contraventions of the Superannuation Industry (Supervision) Act 1993 (Cwlth) by SMSF trustees.

Previously the regulator had limited options to address non-compliance however under the new regime they will be able to issue the following:

• Rectification Direction

A ‘rectification direction’ will require a person to undertake specified action to rectify the contravention within a specified time and provide the Regulator with evidence of the person’s compliance with the direction. For example, the Regulator may issue a rectification direction where the SMSF trustee has:

• borrowed money or maintained an existing borrowing in contravention of section 67(1)(a) or section 67(1)(b) of the Act;
• lent money to a member or relative of a member of a fund in contravention of section 65(1)(a) of the Act; or
• permitted the fund’s in-house assets to exceed 5% of the fund’s market value at the end of an income year and has failed to carry out the steps under the written plan as required by section 82(6) of the Act.
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• Education Direction

An ‘education direction’ will require a person to undertake a specified course of education within a specified time frame and provide the Regulator with evidence of the course’s completion. Such a directive may be given where the person’s lack of knowledge and/or understanding of their obligations has contributed to their contravening the SIS Act or SIS Regulations. The trustee must sign a declaration within 21 days of completing course stating they understand their duties as a trustee.

• Administrative Penalties

An administrative penalty may be issued. The costs imposed under the proposed administrative penalty regime are payable personally by the person who has committed the breach and cannot be paid or reimbursed from assets of the SMSF. An example of some of the current penalty amounts are below: