The Tax & Superannuation Laws Amendment (2014 Measures No. 1) Act 2014 has formally become law, providing for administrative directions and penalties for contraventions relating to Self-Managed Superannuation Funds (SMSFs).
The new penalties started from 1 July, 2014. The new law allows the Australian Taxation Office (ATO) to apply penalties for breaches of the Superannuation Industry (Supervision) Act 1993 (SIS Act). The new penalties are detailed in the list below.
There is now another reason why SMSFs should have a corporate trustee rather than the individual members being trustees. Where an SMSF is in contravention of the SIS Act, each individual trustee is liable for their own separate penalty personally.
For SMSFs with a corporate trustee, each director will be jointly and severally liable for any penalties. This means the corporate trustee would receive only one penalty. If the SMSF has four members and they are each individual trustees then the ATO will issue four fines to those trustees.
For single member SMSFs, having a corporate trustee means non-member trustees are not caught under the new penalty rules.
Each individual trustee would be personally liable for their own separate penalty. That is, the penalty cannot be paid using the funds of the SMSF. Each trustee must pay the penalty from his or her own personal funds.
One of the examples in the legislation’s explanatory memorandum illustrates this point:
Jill and Merryn are members and individual trustees of Yellow SMSF. Jill and Merryn fail to ensure that accounts and statements for Yellow SMSF are prepared for the 2014/15 year of income. As a result, each individual trustee has contravened Section 35B.
An administrative penalty of 10 penalty units ($1,700.00) is imposed on each individual trustee of Yellow SMSF in their personal capacity and Jill and Merryn are each liable to an administrative penalty of 10 penalty units each.
So Jill and Merryn both receive a fine of $1,700.00 each.
Administrative penalties in relation to Self-Managed Superannuation Funds
NB: a full table version of this list including provision of the SIS Act and administrative penalties is available for download – click here to view.
- Prescribed operating standards must be complied with – 20 penalty units ($3,400)
- Failure to prepare financial statements – 10 penalty units ($1,700)
- Lending or providing financial assistance to members or their relatives – 60 penalty units ($10,200)
- Borrowing money (other than by s.67A limited recourse loans) – 60 penalty units ($10,200)
- Failure to comply with in-house asset rules – 60 penalty units ($10,200)
- Failure to keep trustee minutes for at least 10 years – 10 penalty units ($1,700)
- Failure to keep a record of all decisions made by the trustee/s for at least 10 years – 10 penalty units ($1,700)
- Failure to keep a copy of all s.71E elections for at least 10 years – 10 penalty units ($1,700)
- Failure to keep a record of changes to trustees or changes to directors of a corporate trustee for at least 10 years – 10 penalty units ($1,700)
- Failure to keep a signed declaration in the approved form by each trustee or director of a corporate trustee that he or she understands his or her duties as trustee – 10 penalty units ($1,700)
- Failure to keep a copies of all member or beneficiary reports for at least 10 years – 10 penalty units ($1,700)
- Failure to notify the regulator of a having a significant adverse effect on the financial position of the SMSF – 60 penalty units ($10,200)
- Duty to notify Commissioner of Taxation of change in status of entity – 20 penalty units ($3,400)
- Investment managers must be appointed in writing – 5 penalty units ($850)
- Failure to comply with an education direction given by the regulator – 5 penalty units ($850)
- Information to be given to Regulator upon the SMSF being established – penalty units ($850)
- Failure to provide the Regulator with statistical information if selected to participate in survey – 5 penalty units ($850)