Amendments to allow the ATO to impose financial penalties on SMSF trustees are back in, and potentially the heaviest penalty could cost you a swift $10,700.
The fines, which have been on and off the table a number of times, have been passed by both sides of parliament and will come into effect on 1 July 2014.
Special counsel Michael Hallinan of Townsends Business and Corporate Lawyers told Wealth Professional
that advisers and their trustee clients need to start considering now if there are any current breaches that need to be addressed.
“Although it starts on 1 July, if you have a breach that occurred before that and it’s still unrectified by 30 June, the ATO could apply a fine,” he said.
Currently, the rigid and inflexible ATO rules for breaches, which include court action and the removal of tax fund concessions, are often considered too costly, time consuming and disproportionately draconian for the severity of the offence.
The new proposed punishments mean the ATO will be able to impose administrative penalties on trustees, which cannot be paid for or reimbursed from assets of the fund.
It would also allow the ATO to order trustees to attend compulsory education courses at their own expense, or issue rectification orders.
Hallinan said the purpose of the regime is to discourage minor or repeat breaches by using the simpler administrative penalties, rather than the “all or nothing” options currently available.
“If gives the ATO more options than just disqualifying a fund, then it’s a good thing.”
The order to attend compulsory education is a new concept that will be required to be completed within a specific time period, he said.
“I don’t know how successful that will be, but I assume there will be a number of providers that get together to sell courses for these [trustees],” he said. “I suppose the ATO will impose that order initially so that people can’t use the ‘I didn’t know’ excuse [the next time].”
The amendments also give the ATO power to issue a rectification order rather than instantly labelling the fund non-compliant.
Hallinan said this could mean, for example, an asset purchased for a related person that doesn’t fall within an exception would be ordered by the ATO to be sold at market value and within a specific time period.
If this is not carried out precisely and in a timely manner, the trustee could be hit with a “hefty” fine.
However, “most trustees are very interested in their fund or they’re outsourcing, so I think for the most part those people probably won’t be affected,” he said.