SMSF fines for Trustees

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Q. I have a Self Managed Super (SMSF) that my wife and I are Trustees of. What happens if we make a mistake in running the fund? I have been warned that there are changes to the obligations of trustees in administering the fund that could lead to fines if not done properly.  I rely on my accountant to tell me what I need to do. Who is responsible if a mistake is made? 

A. You and your wife as Trustees of the fund are responsible if you make a mistake and as a consequence breach the law.  Effective 1 July 2014, the ATO has new powers to impose fines for compliance breaches by SMSF trustees. These new powers will enable the ATO to issue “speeding fines” for various breaches by a Trustee.  Trustees will be personally liable for fines of up to $10,200 each.

In the past the ATO had limited options available to enforce Trustee compliance. The powers available were heavy handed, expensive to enforce and more suited to really serious breaches. Not anymore. Think of the new system like a “speeding camera”.

Fines are now imposed on a unit basis and each unit is worth $170.  Here are an example of some of the 17 specified contraventions(offences) and the applicable penalties(fines) that are specified in the act (sect 166):

  • “Failure to ensure applicable prescribed standards are complied with at all times” 20 units = $3400
  • “Failure to prepare financial statements when due” 10 units = $1700
  • “Lending to members and their families” 60 units = $10,200
  • “Failing to keep trustee minutes for 10 years” 10 units = $1700
  • “Failing to sign Trustee declaration within 21 days of appointment and keeping it for at least 10 years” 10 units = $1700
  • “Failing to keep member reports for 10 years” 10 units = $1700
  • “Failing to notify ATO of an event that has significant adverse effect on the funds financial position” 60 units = $10,200

Fines are payable personally by the Trustees or the Directors of the Trustee Company and cannot be paid from the assets of the Superannuation fund.

Beyond financial penalties and in addition to rectifying the mistake, the ATO can also direct a trustee to undertake a specified education course in a specified time frame.

In order to avoid any likelihood of penalties, work closely with your accountant and auditor to make sure ensure that your fund is fully compliant at 1 July 2014.  The penalties will also apply to breaches made prior to 30 June but identified after this date.

You can seek compensation for a mistake made by the accountant but that will be between you and him.  It will have nothing to do with the ATO.

As with driving a car, “I didn’t know”, won’t cut it with the ATO when “pulled over”.  You as the Trustee are in charge of “driving” your SMSF.  All Trustees will live with the consequences of their actions or inaction.

Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.