SMSF – New Compliance Treatments

Written by Hein Preller , Posted in ATO SMSF, Information, News, SMSF Topics

The Tax Office has reiterated that SMSF Trustees should be mindful of the legislative framework around super funds. On 14 December 2013, the government announced that it would proceed with legislative changes that give the ATO greater powers in dealing with SMSF Trustees who breach superannuation law.

From 1 July 2014, if SMSF Trustees fail to comply with Superannuation rules, they could be subject to a suite of penalties. The explanatory memorandum that accompanies the new legislation – states that the new SMSF penalties will enable the ATO to “give directions and impose administrative penalties for contraventions of the SIS Act and will provide the Regulator with additional tools, both educational and punitive, in conjunction his existing powers”.

Trustees should be mindful that when financial penalties are imposed by the ATO, they cannot be paid from the SMSF assets. Penalties must be paid from personal funds.

SMSF changes taking effect from 1 July 2014

The following SMSF changes came into effect on 1 July 2014:

Administrative penalties

From 1 July 2014, the ATO  has the power to impose a new list of administrative penalties. The penalties range is from 5 penalty units up to 60 penalty units. Each penalty unit is equivalent to $170. For example:

  • If Trustee fails to sign an SMSF Trustee Declaration, he or she could be fined 10 penalty unit, which is $1,700.
  • If a Fund has 2 Trustees and both of them fail to prepare a Financial Statement for the SMSF for 2014/2015 year, each of Trustees will be fined $1,700.
  • If the SMSF has a Corporate Trustee, the fine will be divided equally to each Directors of the Corporate Trustee.

The maximum administrative penalty for a single breach is $10,800. This penalty could be applied when Trustees breach the borrowing rules or the in-house asset rules. The full list of penalties are set out in Schedule 2 of the Tax and Superannuation Laws Amendment (2014 Measures No 1) Act.

Rectification directions

The new legislation gives the ATO power to force the Trustee to rectify specific contraventions. The ATO can give a “rectification direction” to an SMSF Trustee that “will require a person to undertake specified action to rectify the contravention within a time frame and provide the Regulator with evidence of the person’s compliance with direction”.

The rectification direction will take in to account the financial detriment to the SMSF, the nature and seriousness of the contravention and other relevant circumstances.

Failure to comply with the “rectification direction” given out by the ATO could be resulted in a $1,700 fine or a Trustee could be disqualified.

Education directions

Starting from 1 July 2014, if Trustees breach legislation, the ATO may direct the Trustees to undertake SMSF Education. The reasons for forcing Trustees to take a mandatory education are to improve knowledge and understanding of duties and responsibilities, and also to reduce the risk that Trustees will contravene super laws in the future.

Before the ATO enforce an education direction, they may consider:

  • Whether it is the first time they contravene the super laws.
  • Whether it is the lack of knowledge the main reason for the Trustees breaking the rules.

The education direction would not be given out if:

  • Trustees have made contraventions in prior year.
  • Trustees have been aware of the rules but decided to not follow the rules.

The general education an ATO may enforce can be either an online course or an ATO webinar. After Trustees complete this general education, Trustees might need to sign a new Trustee Declaration and provide a copy of the course completion to the ATO.

For more info on how to run your SMSF while complying with all the rules, please view our page Guide to SMSF page by clicking here.

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Hein Preller

Hein is a Director at Superannuation Warehouse, specialising in setting up new SMSF's. Hein's company performs all the annual administration tasks consisting of preparing financial statements, lodging a tax return and arranging the audit.
  • Andrew Royle

    Hello fellow SMSFers.
    I have a question regarding IRS compliance for those non-residential entities who have trading accounts in US financial markets and are therefore possibly subject to having tax debited from received dividends in that geographic locality.

    When it comes time to complete a form that facilitates an exemption or minimization of this tax the question is asked to supply the GIIN (i.e. a number) of the sponsoring entity.

    Can you help with this matter?
    Regards,
    Andrew.

    • superannuationwarehouse

      Andrew,

      Thanks for posting.

      These requirements you refer to are part of the FATCA regime. The Foreign Account Tax Compliance Act (FATCA) is not applicabe for SMSF’s as SMSF are specifically exempted, we give the links here:
      http://www.smsfwarehouse.com.au/foreign-account-tax-compliance-act-fatca/

      An SMSF does not have any FATCA reporting obligations, and can therefore mark these areas as na. More on FATCA over here as an FYI:
      https://www.irs.gov/businesses/corporations/frequently-asked-questions-faqs-fatca-compliance-legal.

      Keep well,
      Hein

      • Andrew Royle

        Thanks Hein. I’ll go ahead and use that reply.

        • Andrew Royle

          If the person in question strikes difficulty in having the answer of na submitted on the form then that person could try going back to the question on Chapter 4 Status and change the setting from Sponsored FFI etc. (in my case the default setting) and change to Exempt retirements etc. This will take you to a screen which does not ask for your GIIN number.

          • superannuationwarehouse

            Thanks for the update

  • Ian

    If you’ve been in Australia for a number of years & you transfer your UK pension into a QUORPS SMSF, is the non concessional value under the $100k p.a. ($300k for 3 years) limit assessed vs the value at the time you became an Australian resident or the value at the time of the transfer?

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