Second Round of Cooper SMSF Reforms – Speeding Tickets and School Detention for SMSF Trustees

20 September 2012

While the most significant of the reforms arising from the Cooper Review apply to the non-SMSF superannuation section, some reforms do affect the SMSF superannuation sector.  The changes to “collectables and personal use assets” have already been implemented.  The Federal Government has recently released draft legislation relating to administrative directions and penalties for SMSFs.

The draft legislation provides for administrative penalties (so called “speeding tickets”) for SMSF trustees for breaching various parts of the SIS Act and Regulations.  Additionally, the ATO will be authorised to issue directions to SMSF trustees to either rectify SIS contraventions or to undertake educational courses.  Obviously a failure by an SMSF trustee to comply with a rectification or educational attendance direction will expose the recalcitrant SMSF trustee to an administrative penalty (ie speeding ticket).

The purpose of these changes is to allow the ATO to enforce SIS without resorting to the criminal law or the nuclear option of making the relevant SMSF non-complying.

It should be noted that having a company as trustee of an SMSF will not preclude the ATO from issuing speeding tickets – they will be issued to the directors and rectification and education attendance directions will also be issued.

The proposed commencement date is 1 July 2013 and the new reforms will apply to contraventions of SIS which occur on or after 1 July 2013.  

Why the Government thinks Speeding Tickets and School Detention is required

The justification for such changes is that the current penalties the ATO can impose are limited and possibly disproportionate to the offence.  Also, in the case of enforceable undertakings, the ATO cannot enforce the undertaking.  The ATO can, however, make the relevant fund non-complying if the undertaking is not performed.

What will the ATO be able to do?

Once enacted, the ATO will be able to:

  • issue a rectification direction to one or more named SMSF trustees (or directors of a corporate trustee) which requires the named person to take specified action to rectify a contravention, to take such action within a specified period and to provide evidence to the ATO that the action has been taken and taken within the required time;
  • issue an education direction to one or more named SMSF trustees (or directors of a corporate trustee) which requires the named person to undertake a specified course of education within a specified period and to provide evidence of attendance to the ATO; and
  • impose administrative penalties for contraventions of specified SIS provisions (whether sections or regulations) and failure to comply with a rectification or educational attendance direction) ranging from five penalty units ($550) to 60 penalty units ($6,600).

Administrative penalties must be borne by the trustees or directors: they cannot be paid by the SMSF or reimbursed by the SMSF and are not deductible.

What is the Bill of Fare?

The following penalties will apply:

  • breach of a SIS prescribed standard - $2,200
  • failure to keep SIS mandated financial statements - $2,200
  • breach of the prohibition against providing loans to or financial accommodation to members and relatives - $6,600
  • breach of the prohibition against borrowing - $6,600
  • breach of the in-house asset rules - $6,600
  • failure to keep trustee minutes - $1,100
  • failure to retain trustee minutes for a minimum period of 10 years - $1,100
  • failure to keep change of trustee/directors documents and consents - $1,100
  • failure to retain change of trustee/director documents and consents for a minimum period of 10 years - $1,100
  • failure to sign trustee declaration within 21 days of appointment of trustee/director - $1,100
  • failure to keep copies of member or beneficiary reports - $1,100
  • failure to retain copies of member or beneficiary reports for a minimum period of 10 years - $1,100
  • failure to notify the ATO of significant adverse events in relation to the fund - $6,600
  • failure to notify the ATO of a change in status - $1,100
  • failure to comply with an educational attendance direction - $1,100.

Details of the Draft Legislation

Tax Laws Amendment (Stronger Super Self Managed Superannuation Funds) Bill 2012: Administrative Penalties.

It is important to remember that legislation has been issued for public comments.  The final legislation may be materially different.

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