The article New ATO powers receive royal assent in our previous edition outlined the new SMSF penalty powers that came into effect from 1 July 2014. We can now direct trustees who contravene certain provisions of super law to undertake an education course, rectify the contravention or pay an administrative penalty.
The following case studies demonstrate some practical situations where the new powers will apply.
Example
The ABC fund had a contravention reported to the ATO in 2012–13. The contravention was rectified and the trustees were given information about their roles and responsibilities. Another auditor contravention report (ACR) was lodged in 2014–15 for a breach of the in-house asset provisions, the contravention was not rectified and no written plan was in place to rectify. In this situation the ATO is unlikely to issue an education direction as it is unlikely to have a positive influence on future behaviour. The ATO would most likely issue a direction to rectify and the trustees would each be liable to pay the penalty of $10,200. Because of prior compliance history and no steps being taken to rectify, remission of this penalty is unlikely.
Example
The DEF fund has an ACR lodged for the 2104–15 year for lending fund money to a member. There is no prior history of contraventions and when advised by the SMSF auditor that lending was prohibited, the trustees took immediate steps to recover the loan, which was paid in full, prior to ATO intervention. In this situation the ATO may decide that a direction to undertake an education course is appropriate. All trustees would be liable to a $10,200 penalty; however the ATO may remit the penalty as the contravention was rectified and there is no previous history of non-compliance.
Please feel free to contact our office to discuss further how this may affect you