On SMSF Essentials (Money Management) David Court reported on the new penalty regime for self-managed super SMSF from 1 July 2013.
At present, IF a self-managed super fund (SMSF) contravenes an applicable regulatory provision during a year of income then the Australian Taxation Office (ATO) can either:
- Overlook the contravention;
- Seek an enforceable undertaking; or
- Issue a notice of non-compliance.
There is also the possibility that the ATO may impose interest charges and other penalties — depending on the nature of the contraventions that occurred.
The consequences of becoming non-complying are quite onerous. The SMSF is no longer eligible to receive superannuation guarantee contributions and will lose its tax concessional status.
Additionally, the non-complying SMSF will have to pay additional tax equal, in effect, to all of the tax concessions that it has received in the past. This amount can be quite large for a fund that has been in operation for some time.
The issuing of a notice of non-compliance is a fairly rare occurrence — only one or two hundred tend to be issued each year.
Given the severe consequences of being made non-complying and the ATO’s ability to overlook contraventions (either because they are trivial or have been rectified), the ATO issues a non-compliance notice only as a last resort in serious cases.
Enforceable undertakings have also tended to prove an inefficient remedy in practice.
In recognition of this result, the Cooper Review recommended that the ATO be given the power to issue administrative penalties against SMSF trustees on a sliding scale reflecting the seriousness of the breach.
This would give the ATO a range of penalties to impose on SMSF trustees who contravened the regulatory requirements rather than the existing “all or nothing” nature of the non-compliance notice.
The Government supported this recommendation and the new regime is due to be introduced from 1 July 2013.
The New Penalty Regime
The new rules will only apply to SMSFs and will allow the ATO to:
- Issue a Rectification Direction – if the ATO reasonably believes that a contravention has occurred it can require the offending trustee or director to take specific action to rectify the contravention within a specific timeframe, including putting in place arrangements to prevent further contraventions of a similar kind;
- Issue an Education Direction – if the ATO reasonably believes that a contravention has occurred it can require a person to successfully complete a free, ATO-approved education course within a specified time; and
- Impose an Administrative Penalty – this only applies in relation to specific contraventions and may result in a penalty of up to $10,200 for each breach.
A person will be able to object to an ATO decision to impose a Rectification Direction or an Education Direction.
David goes on to detail about Rectification, Education, and Administration and Fines, worth a read!
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