ATO actions against SMSF trustees won’t affect you as an SMSF trustee until you run into trouble. Either intentionally or by mistake.
ATO Actions Against SMSF Trustees
At the start having your own SMSF sounds wonderful. It will be your own. You will be the one running the show.
But an SMSF also comes with a ton of responsibilities… and tough ATO actions when you don’t meet these. As an SMSF trustee you can be subject to 7 different ATO actions.
1 – Administrative Penalties
2 – Rectification Directions
3 – Education Directions
4 – Civil Penalties
5 – Criminal Penalties
6 – Disqualification of SMSF Trustees
7 – Notice of Non-Compliance
The worst one is probably a notice of non-compliance (# 7) since your SMSF looses all tax concessions. But let’s look at these one by one.
1 – Administrative Penalties
Administrative penalties are measured in penalty units. Per s166 SIS Act penalties can range from 5 up to 60 penalty units. A penalty unit is currently $210. So the maximum penalty of 60 penalty units would add up to $12,600 per trustee.
If your SMSF has four individual trustees, this would mean a maximum penalty of $50,400 – one of many arguments against individual trustees.
When you have a corporate trustee, the ATO can only issue one penalty notice. So the maximum penalty would be $12,600 – another argument for a corporate trustee.
Be it individual or corporate trustee – you can’t pay these penalties from SMSF assets. Instead you must pay these out of your own pocket.
While the ATO has no discretion in administering these penalties – they are what they are – the ATO can remit these penalties, either partially or in full. You can fight the ATO on this though and take them to court.
2 – Rectification Directions
The ATO can order you to fix the problem. They can require you to undertake specified action to rectify the contravention and show evidence that you have actually done that within a specified time frame.
And they can ask you to outline the arrangements you have put in place to ensure all this won’t happen again.
If you don’t think the ATO’s direction makes any sense, you can ask for a variation of a rectification direction in writing before the specified date. You must date and sign the request and most importantly you must outline why you request this variation. If the ATO refuses to vary their direction, you can object.
A good way to avoid a rectification order is to give the ATO an enforceable undertaking. So rather than you waiting for the ATO to tell you to fix the problem. You are proactive and tell the ATO how you will fix it. The ATO usually welcomes such initiative.
3 – Education Directions
If the ATO suspects that you might lack knowledge and understanding of your responsibilites as a trustee, they can ask you to attend a course to help you better understand your obligations as an SMSF trustee. They call this an ‘education direction’.
Such an education direction will ask you to undertake an ‘approved course’ within a specified time frame. And show evidence that you actually completed the course.
Some of these courses are free, but if you do a fee-paying course, you will need to pay for this out of your own pocket and not from SMSF funds.
And you will be required to re-sign your SMSF trustee declaration to confirm that you understand your obligations and duties as a trustee.
An education direction seldom comes alone. The ATO will usually combine an education direction with a rectification direction and / or an administrative penalty.
Under the law, all trustees are treated as if they were aware of the SIS Act and Regulations. No matter whether this is actually the case or not. So you can’t use lack of knowledge as a defence. “Sorry I didn’t know” is not a valid defence, unfortunately.
4 – Civil Penalties
If you thought, administrative penalties were harsh. Wait for civil and criminal penalties. These are even tougher.
If you contravene a civil penalty provision, a court can make a civil penalty order gainst you under s196 SIS Act. The maximum civil penalty is currently 2,000 penalty units, which translates to $420,000 (at $210 per penalty unit), as defined in section 4AA of the Crimes Act 1914.
5 – Criminal Penalties
The ATO can impose criminal sanctions – and not just on SMSF trustees but also on others. For example on promoters of illegal early access super schemes.
6 – Disqualification of SMSF Trustee
The ATO can disqualify you as an SMSF trustee if they no longer see you as a fit and proper person. If they are concerned with your actions or your suitability as a trustee.
Declaring you not to be a fit and proper person is a big thing though. And so disqualification will only ever happen after weighing up the seriousness and frequency of your contraventions and the likelihood of you re-offending
7 – Notice of Non-Compliance
In the case of a serious breach of the SIS Act, the ATO can issue a notice of non-compliance. Your SMSF will then remain non-compliant until you receive a notice of compliance.
Your now non-complying superannuation fund will lose its concessional tax treatment and that can result in a large tax bill.
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So given all this it really pays to seek help early. Please write or give us a call if you get stuck.
“A sum can be put right: but only by going back till you find the error and working it afresh from that point, never by simply going on.”
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Penalty Units for SMSF Trustees
Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 14 March 2020
Penalty Units 
