New rules introduced from 1 July 2014 provide the ATO with much broader powers to deal with breaches of the super laws by SMSF trustees.
The new regime introduces administrative directions and penalties for SMSF related contraventions including rectification directions, education directions and administrative penalties. It gives the ATO more power and flexibility to impose effective sanctions and, if necessary, penalise the trustees of a SMSF.
Rectification direction
A rectification direction is a written direction requiring a trustee or a director of the trustee company to take specified action to rectify the contravention and provide the Taxation Office with evidence of their compliance with the direction.
Education direction
An education direction is a written direction requiring a trustee or a director of the trustee company to undertake a specified course of education and to provide the Taxation Office with evidence of completion of the course
Administration penalties
If a trustee or a director of the trustee company contravenes a section of the SIS Act specified in the table in section 166, they are liable to an administrative penalty. The administrative penalty regime works through penalty units. A penalty unit currently equates to $170
Where an administrative penalty is imposed it must be paid personally by the trustee or the director of the trustee company and cannot be paid or reimbursed by the SMSF. Where a SMSF has individual trustees, the ATO will impose any penalty on each individual trustee, meaning the penalty will be multiplied by the number of trustees. Corporate trustees, however, will incur only 1 penalty.
The main types of contraventions and their penalties are:
[Contravention Penalties (Image)]
Corporate versus individual trustees
As mentioned above, where a SMSF has individual trustees, the administrative penalty is imposed on each individual trustee.
Where the SMSF has a corporate trustee, the administrative penalty is imposed on the corporate trustee and each director of the corporate trustee is jointly and severally liable for the penalty. Only one penalty is applied to the corporate trustee whereas individual trustees may receive multiple penalties.
For example in the case of a 60 units penalty, a SMSF with 4 individual trustees will have a total of $40,800 in penalties, whereas the directors of a corporate trustee will have, between them, a total penalty of $10,200.
Aggregation of sanctions
The ATO is given great discretion in applying the sanctions. It can impose administrative penalties concurrent with rectification directions and education directions for the same contravention. If the rectification direction is not complied with, or if a contravention of the same kind occurs in the future, the ATO may apply further sanctions, including issuing a notice of non-compliance.
Personal liability for costs and penalties
Costs incurred by individual trustees or directors of the trustee company to comply with the education direction, or the administrative penalties must be paid by the individual trustees or the directors of the corporate trustee and cannot be reimbursed from the SMSF. These costs are not tax deductible.
Pre 1 July 2014 contraventions
The new penalty regime does not apply to pre 1 July 2014 contraventions that have been rectified by 30 June 2014.
