When it comes to retirement funding, over one million Australians have established Self-Managed Super Funds (SMSFs) to take more control over this crucial stage of their lives. However, SMSF trustees take note – to protect your and your fellow members’ best interests, there are strict rules governing SMSFs which, if broken, attract strong penalties.
The basis of all superannuation law is that every super fund must meet the “Sole Purpose Test” – it exists solely to fund retirement (or to pass to dependents if the member dies).
SMSF trustees whose funds are not fully compliant will incur the financial wrath of the ATO as follows:
A rectification direction requires the trustee to rectify a breach within a specified timeframe and provide evidence to the ATO of completion in accordance with SMSF regulation.
An education direction requires the trustee to undertake a specific course on SMSF compliance to ensure he/she has a better understanding of a trustee’s obligations and responsibilities and to prevent future breaches. This course must be completed with a specified timeframe and proof of completion provided to the ATO. Failure to comply will result in a $1,050 fine.
An administrative penalty applies to those breaches that have previously gone unpunished. Trustees will be fined based on the following breaches of the Act. It is important to note that these fines cannot be paid from the SMSF – they come directly out of the trustee’s own pocket.
| Section & Rule | Administrative Penalty |
| s.35B – failure to prepare Financial Statements | $2,100 |
| s.65 – prohibition on lending or providing financial assistance to members and their relatives | $12,600 |
| s.67 – prohibition on super fund borrowing, except as permitted, eg. limited recourse borrowing arrangement | $12,600 |
| s.84 – contravention of In-House Asset rules | $12,600 |
| s.103(1) & (2) – failing to keep trustee minutes for at least 10 years | $2,100 |
| s.103(2A) – failure to maintain a s.71E election, where applicable, in relation to a fund with an investment in a pre-11/8/99 related unit trust | $2,100 |
| s.104 – failing to keep records of change of trustees for at least 10 years | $2,100 |
| s.104A – failing to sign Trustee Declaration within 21 days of appointment and keep for at least 10 years | $2,100 |
|
s.105 – failing to keep member reports for 10 years |
$2,100 |
| s.106 – failing to notify ATO of an event that has significant adverse effect on the fund’s financial position | $12,600 |
| s.106A – failing to notify ATO of change of status of SMSF, eg. fund ceasing to be a SMSF | $4,200 |
| s.124 – where an Investment Manager is appointed, failing to make the appointment in writing | $1,050 |
| s.254(1) – Failing to provide the Regulator with information on the approved form within the prescribed time upon establishment of the fund | $1,050 |
| s.347A(5) – Failing to complete a form with requested information provided by the Regulator as part of the Regulator’s Statistical Program | $1,050 |
The ATO has the power to make a fund non-compliant, disqualify trustees, or instigate civil or criminal charges for more severe breaches.
Freedom always comes at some cost but given that these rules are put in place to protect your investments that will fund your retirement, adhering to them will ensure you and your family are the ones who ultimately benefit.
If you have any questions or concerns about your SMSF, please contact your licensed financial adviser or SMSF specialist.
For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.
Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
