New ATO Penalty Regime – SMSFs Must Consider Corporate Trustees
Australian Company Incorporation Services
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The ATO has recently been handed new powers to ensure that SMSF trustees comply with their duties and obligations. These commence from 1 July 2014.
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The new regime allows the ATO to issue:
- A Rectification Notice – this requires specific action be taken by the trustee within a specified time frame to rectify a contravention.
- An Education Notice – this requires a person to undertake a specified course of education within a certain time, and give the ATO evidence of completion. No fee may be charged for the course and any cost incurred in undertaking the course cannot be reimbursed or paid from the fund – trustees must pay the costs out of their own pockets.
- An Administrative Penalty Notice – for breaches of certain sections of the SIS Act, a penalty notice may be issued to either individual trustees or a corporate trustee.
While the first 2 of these are likely to impose additional costs and time requirements on trustees, it is the 3rd that will cause the most anxiety because it is likely to be the one which is used most often by the ATO. We have included a table below which lists the penalties.
The new powers have also been the subject of articles published in the mainstream media in recent weeks – The Australian Financial Review and the Sydney Morning Herald, for example.
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What the new regime means for trustees:
- Any administrative penalties imposed on trustees cannot be reimbursed or paid from the fund – trustees must pay the penalties out of their own pockets.
- The ATO has no discretion to reduce or withhold the penalties meaning even inadvertent or accidental breaches will attract a penalty.
- Where a SMSF has individual trustees the ATO will impose a penalty on each individual trustee meaning the penalty will be multiplied by the number of trustees. Corporate trustees will incur only 1 penalty.
The new penalties will likely be generated from the fund’s audit report and auditors will be obliged to notify the ATO of any non-compliance.
The message is that trustees must be even more vigilant in their record keeping and in the transactions which the fund undertakes. One way to reduce potential penalties is to appoint a corporate trustee now to avoid the possibility of multiple penalties.
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While many professional advisers already recommend that their clients use corporate SMSF trustees (for various reasons, summarised here), given these changes, all SMSFs with individual trustees, and those establishing new funds, should now consider the appointment of a trustee company to avoid the possibility of multiplying these substantial penalties.
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Contact us for more information or if you would like assistance in arranging a corporate trustee for your SMSF.
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