Auditors say that many super fund members are breaching their fund rules – usually inadvertently – without fully understanding the consequences. These breaches are resulting in massive fines for your clients, and from 1 July the ATO will be even tougher. Gunilla Haglundh reports:
DFK Australia New Zealand auditor and partner Simon Bragg, says auditors see the most peculiar transfers when they are auditing funds: “We come across the most bizarre transfers, where the fund is investing in wedding rings, art that sits on the walls, holiday apartments and loans that are given on non-commercial grounds.”
If the auditor discovers a breach that can’t be rectified immediately, and even if it has been rectified, they have an obligation to write a ‘contravention report’, which often results in a fine for your client. It must be paid jointly by the trustees and cannot be reimbursed by the fund.
Your client can expect $10,200 in penalties for lending money to a relative who needs some financial assistance. Another $10,000 can be fined for failing to comply with rules regarding a fund that owns certain investments. There are cases where the mistake has been minor but the fine has still been considerable.
“Approximately, 1-2% of our clients breach the funds; where we have to report to the ATO,” says Bragg.
The most common breach is withdrawing money from a fund bank account, which could see your clients paying severe fines, even if it’s discovered and repaid. The ATO used to have an understanding attitude towards mistakes, but not anymore – too many mistakes are being made that are not innocent. This could be in the form of a company that starts to get into financial trouble and the owner thinks he can “borrow” money from the fund to cover his losses in his company.
Another change is that from July the ATO will be able issue fines against fund trustees under the Tax Administration Act. Under this act it will be easy for the ATO to reprimand the funds for relatively common breaches, and simple to penalise them. The penalties are calculated on the ‘base amount’. Each penalty unit represents a value $170, up from $110. So for example a 60 penalty unit offence leads to a fine of $10,200. (It will be increased every third year by inflation.)
The max penalty is $220, 000 so you better make sure that your clients comply with all the rules.