New SMSF Penalty Regime

It is surprising the number of people we meet who mistakenly believe that a SMSF is something that your should manage yourself.

As we often say, “Compliance is the #1 Risk you must manage if you have a SMSF”.

From July 1, the ATO has been given powers to issue rectification and education directions to non-compliant SMSF’s  (as determined by the Auditor Contravention Reports) to ensure trustees are fully aware of their obligations as trustees of a SMSF.

The ATO has also implemented a new penalty regime for contraventions to SMSF compliance legislation and the can now directly penalise non-compliant SMSF’s  with an Administrative Penalty which must be paid personally by the trustee or director of the trustee company, and cannot be reimbursed by the SMSF.

Even worse, if your SMSF has individual trustees, the penalty will be payable by each individual trustee, making the total penalty payable at least double (if you have two individual trustees) than that paid by a corporate trustee.

We would expect to see significant activity in the future from the ATO in this area and would recommend that SMSF trustees review their fund to ensure compliance. We are happy to sit down with and concerned trustees for to discuss SMSF fund compliance and to assist with rectifying any issues.

The Fusion value proposition in servicing our SMSF clients is we offer an end to end solution including advice, investments, accounting and administration ensuring our clients achieve the best possible result from their SMSF and have a great quality of life knowing their financial future is on-track.

SMSF Operating Standards

In addition to the requirement to keep SMSF assets separate from those of the members and/or the employer sponsor of the fund, the following standards have been added:

  1. The trustee must review the SMSF Investment Strategy regularly.
  2. The trustee must consider the personal insurance needs of the fund members as part of the investment strategy.
  3. All assets must be revalued annually.

It is imperative that all trustees of SMSFs attend to a review of their current investment strategy, and also to take all necessary steps to obtain valuations.  Failure to comply with these obligations carries a penalty of up to 100 penalty units.

Below is a list of rules and the penalty that would apply in each case:

Section Summary Units Amount
s.124 where an Investment Manager is appointed, failing to make the appointment in writing 5 $850
s.160 failing to comply with an ATO education directive 5 $850
s.254(1) failing to provide the ATO with information on the approved form within the prescribed period upon establishing a fund 5 $850
s.347A(5) failing to complete a form with requested information provided by the ATO as part of the ATO’s statistical program 5 $850
s.35B failure to prepare Financial Statements 10 $1,700
s.103(1)+(2) failing to keep trustee minutes for at least 10 years 10 $1,700
s.103(2A) failure to maintain a s.71E election, if applicable 10 $1,700
s.104 failure to keep records of change of trustees for at least 10 years 10 $1,700
s.104A failing to sign a trustee declaration within 21 days of appointment and keeping records for at least 10 years 10 $1,700
s.105 failing to keep member reports for 10 years 10 $1,700
s.34(1) failure to comply with operating standards 20 $3,400
s.106A failing to notify the ATO of change of status 20 $3,400
s.65 lending or providing financial assistance to members and their relatives 60 $10,200
s.67 borrowing, except where permitted 60 $10,200
s.84 contravention of the in-house asset rules 60 $10,200
s.106 failing to notify the ATO of an event that has a significant adverse effect on the fund’s financial position 60 $10,200

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