Watch out, wayward SMSF trustees

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The proposed increase in Australian Taxation Office powers should be a warning to delinquent SMSF trustees, according to a not-for-profit superannuation organisation.

Superannuation Australia, a wholly-owned subsidiary of lobby group Taxpayers Australia, has released a statement saying the proposed ATO powers will allow the government to chase wayward SMSF trustees more easily.

“While the vast majority of trustees do the right thing, there is a stubborn cohort of trustees that regularly do the wrong thing or fail to lodge annual returns,” Superannuation Australia superannuation products and services manager Reece Agland said.

“For too long the ATO was limited in what it could do, and in many instances the ultimate penalty of making a fund non-complying was too much of a sledgehammer. The ATO had limited other powers though to coerce conformity. This has encouraged a number of trustees to ignore or breach their obligations on a regular basis.”

Recently the ATO released figures which showed about one in 60 SMSFs breached rules each year. For the financial year to the end of June 2013, around 7,700 funds were reported to the ATO by their auditors for about 18,000 breaches. 

Many of the breaches were minor, with just under half already fixed up by the time the fund’s annual return was lodged.

The most common infringement was funds giving financial assistance to members or relatives, which represents about one in five breaches. About the same number of funds breached in-house asset investment rules.

The proposed changes will give the ATO the power to:

•    issue a fine of up to 60 penalty units (currently $10,200)
•    compel trustees to undertake training and education
•    compel trustees to sign or re-sign the DIY Fund Trustee Declaration.

The Coalition government indicated late last year it intended to proceed in 2014 with these Labor-introduced measures. 

Superannuation Australia is supporting the changes. Agland said the ATO should be better able to tailor its penalty to the breach and put more pressure on trustees to comply.

“The ATO will be able to compel trustees to undertake training to better understand their obligations, will be able get undertakings from trustees as to future behaviour, and ultimately be able to fine them for repeated behaviour.

“We believe this will not only help the ATO secure better compliance but reduce the burden on SMSF advisers who have to constantly battle with these types of trustees to get material lodged and provide appropriate documentation. Advisers should be talking with these delinquent trustees now to encourage them to come clean and avoid penalties in the future.”