Trustees should get ready for the possibility of more hip pocket pain with a new administrative penalty regime for SMSFs under the Stronger Super amendments
Recently the Australian Taxation Office (ATO) had shown a slight softening in its stance towards some SMSF trustee errors mainly focusing on breaches of the contributions caps.
But just as in life regulation of the sector has to have a balance meaning one concession will lead to a hardening up of procedure somewhere else. In this instance the adverse item has manifested itself in the form of harsher administrative penalties.
To be fair the tougher regime has not been sprung upon the sector overnight. The birth of the new parameters came from the exposure draft Tax Laws Amendment (Stronger Super SMSF) Bill 2012 which has had the required feedback from interested parties.
Administrative penalties have been referred to as “traffic cop” penalties by recognised industry professionals and it’s a pretty good description of what they really are. Just like general members of the public get allocated demerit points on their driver’s licenses for certain traffic infringements SMSF trustees get slugged with penalty units by the ATO for administrative contraventions under the Superannuation Industry Supervision (SIS) Act.
In total there are 17 administrative penalties the new legislation has proposed covering a range of SIS Act breaches. An example would be the contravention of an operating standard such as paying a pension inappropriately, accepting contributions incorrectly, and not preparing the fund’s annual accounts. If a trustee falls foul of these regulations the ATO can issue them with a 20 penalty unit fine straight away.
Another example would be breaching the rules governing financial assistance to fund members or relatives. In these instances the ATO can issue a 60 penalty unit fine.
As you probably suspected the penalty units have no significance in isolation but have a monetary amount attached to them and it is here where the government decided to up the ante in its 2012 Mid-Year Economic and Fiscal Outlook. Previously one penalty unit was worth $110 for an individual and $550 for a corporation.
The new laws will see these bumped up to $170 per unit for an individual and $850 per unit for a corporation. It translates to a 55 and 35 per cent increase respectively which is pretty steep in anyone’s language. Consequently an individual trustee who breaches an operating standard under the amended rules will soon face a fine of $3400 and a corporation in the same predicament will receive a fine of $17,000.
About the only positive note is the dollar amounts associated with the penalty units will not be indexed to the consumer price index (CPI).
A final imposition is these fines cannot be paid via the fund’s assets and instead have to be paid from the personal resources of the trustee. Apart from issuing penalty units under the new bill the ATO also has the ability to instruct trustees to fix The contraventions in question or direct trustees to undertake a formal education process that will clarify their legal obligations.
So trustees should get ready for more hip pocket pain in the event of SIS Act and SIS Regulation contraventions come 1 July 2013, the proposed start date of the changes.
Darin Tyson-Chan is editor of self managed super, a new publication dedicated to the SMSF practitioner. If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au
