Suite 8 / 260 Auburn Road, Hawthorn 3122
Phone: 03 9214 4100
Fax: 03 9818 6008
enquiries@trumpetfinancial.com.au
 
 
eWombat Search
  LATEST FINANCIAL NEWS
 
Hot Issues
Retiree self-protection: A volatility-and-downturn 'bucket'
How financial advice helps create wealth.
Superannuation gender gap narrowing, research shows
All the stats you need to see how Australia is going.
Market downturns, like this one, are to be expected
ATO claws back $850m in unpaid SG in FY 17-18
‘Hefty penalties’ with TRIS payment failures, SMSFs warned
The global financial crisis: Behind us but far from over
'Huge' professional risk in SG delays, big four firm warns
What a financial adviser can add to your portfolio's returns.
ATO updates crypto guidance
Reverse mortgages: Short-term gain, long-term pain
ATO set sights on 27,000 funds in ongoing crackdown
ATO zones in on hundreds of newly created reserves
A dynamic approach to retiree spending and drawdowns
Your investment freedom-maker
Living expenses for retirees on the rise
Still a long and bumpy road to travel on the way to a U.S.-China deal
Smart spouse investing
How financial advice helps create wealth.
What the ATO will be keeping an eye on in FY19
Examining the S in SMSF
Trade tensions to choke global growth: Moody’s
Tools for budgeting, cash flow, Super and more ….
Statistics show SMSFs not just for the rich
SMSFs lose thousands in property, investment scams
Articles archive
Quarter 3 July - September 2018
Quarter 2 April - June 2018
Quarter 1 January - March 2018
Quarter 4 October - December 2017
Quarter 3 July - September 2017
Quarter 2 April - June 2017
Quarter 1 January - March 2017
Quarter 4 October - December 2016
Quarter 3 July - September 2016
Quarter 2 April - June 2016
Quarter 1 January - March 2016
Quarter 4 October - December 2015
Quarter 3 July - September 2015
Quarter 2 April - June 2015
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Quarter 4 of 2015
Articles
Should we expect stormy skies or sunshine in 2016?
Merry Christmas and Happy New Year 2015
There's no one-size-fits-all retirement income
Market Update – 30th November 2015
Diversifying and cutting costs with ETFs
Why the ATO’s new powers make SMSF compliance more important than ever
'Unretiring' retirees
The detrimental impact of poor SMSF record-keeping
Counting the cost of 'grey' divorce
Combining total-return investing with realistic investment expectations
Market Update – 31st October 2015
Another telling reminder for SMSF trustees
Death in paradise – or your SMSF
Elderly exploited for assets
Intergenerational challenges for retirement saving
Death benefits – navigating the minefield
Strategy over structure
Market Update – 3oth September 2015
SMSF and limited resource borrowing – a warning
External partnerships and the in-house asset rules
Take a closer look at SMSF age demographics
Why the ATO’s new powers make SMSF compliance more important than ever

It was big news when the Australian Taxation Office (ATO) was granted the right to unilaterally impose monetary penalties for certain contraventions of superannuation laws.



     


The ATO gained this power with effect from July 1, 2014.


Before July 1, 2014, in order to have a monetary penalty imposed, the ATO had to apply to the Federal Court and argue its case there. The court did not always impose a penalty (see Dolevski v Hodpik Pty Ltd [2011] FCA 54).


However, that has all changed. Now, under the new powers, for the more serious contraventions (such as contravention of the borrowing rules), the ATO can unilaterally impose monetary penalties at a rate of up to 60 penalty units per trustee.


The number of penalty units has not increased. However, the dollar amount that a penalty unit represents has increased.


When the ATO first received the power to impose monetary penalties on July 1, 2014, one penalty unit represented $170. From July 31, 2015, this was increased by almost 6 per cent to $180.


This increase received little attention, but it can add up to a significant additional penalty. For example, consider a self-managed super fund (SMSF) with two individual trustees that lends more than 5 per cent of its assets to members.


This is simultaneously a contravention of section 65 (no loans to members) and section 84 (in-house asset rules) of the Superannuation Industry (Supervision) Act 1993. Contravention of each leads to – among other things – the ATO being able to impose an administrative penalty of up to 60 penalty units per trustee.


Accordingly, the past and present positions are set out in Table 1:



Please click on image for larger version.


Screen Shot 2015-10-22 at 8.10.02 PM


Individual versus corporate trustees


The above table also segues into an important point regarding administrative penalties. Namely, many have observed that unlike individual trustees who each receive a separate administrative penalty, in the case of contraventions by a corporate trustee of an SMSF, the directors are jointly and severally liable for the penalties. Accordingly, if the SMSF in the above example had a company as trustee, the table would be as in Table 2.



Please click on image for larger version.


Screen Shot 2015-10-22 at 8.10.39 PM


Naturally, this benefit gets more and more pronounced the more trustees a fund has. For example, if an SMSF had four individual trustees, the maximum administrative penalty if the contravention occurred post July 31, 2015 would be $86,400, whereas if the SMSF had a corporate trustee, the maximum administrative penalty would remain at $21,600.


However, there is a practical quirk to be aware of. Where the ATO imposes administrative penalties in respect of an SMSF with a corporate trustee, the directors are jointly and severally liable. What this means legally is that the ATO may collect the entire penalty from any one of the directors of the corporate trustee or from all directors in various amounts until the penalty is paid in full and – to continue the example from above – the total amounts paid by all the directors would need to add up
to $21,600.


However, what this means practically is very different. Practically, each director will receive a letter from the ATO stating “You are liable for an administrative penalty…” To again continue the example from above, each director would receive a letter from the ATO with the subject “Notification of penalty” stating “You are liable for an administrative penalty…The assessment of penalty (or penalties)…$21,600”. The next page might explain the nature of joint and several liability; however, some can incorrectly read the letter to think that the benefit of corporate trustees in minimising exposure to administrative penalties does not exist.


The statistics


A recent ATO speech by Kasey Macfarlane, ATO assistant commissioner, SMSF segment, has revealed some interesting statistics – namely, that during the 2014-15 financial year:


  • 27 rectification directions were given (a new ATO power)
  • 44 SMSFs were wound up due to compliance action
  • 54 education directions were given
  • 92 funds were made non-compliant, with trustees receiving a notice of non‑compliance
  • 361 enforceable undertakings were accepted by the ATO
  • 662 disqualified trustees were disqualified.

Considering that there were 528,052 SMSFs at the start of the 2014-15 financial year, the above suggests that the proportion of “ratbag” SMSFs is very low.


Another noteworthy point is that disqualification is a relatively common outcome compared to other avenues such as non-compliance. Naturally, once a person has been disqualified, they can never be a member of an SMSF again. If that person never intends to have an SMSF again, then on its face, being disqualified is not such a big deal.


However, the real sting is that if someone is disqualified, that is publicly available information. Many people are often not aware of this. The Notice Of Disqualification is gazetted and a simple Google search of the person’s name often brings up the Notice Of Disqualification from the government website ComLaw in the first few Google hits. Naturally, this can have a negative implication for someone’s reputation.


(I am often asked if a disqualified person can still be a member of an SMSF, but where the holder of their enduring power of attorney is the trustee/director – the answer is no: see section 17A(10) of the Superannuation Industry (Supervision) Act 1993, which expressly addresses this.)


Compliance with the superannuation law is more important than ever. The ATO has new – and more powerful – options available to it. In my experiences with the ATO, the ATO is practical and reasonable, but naturally everything has limits and an SMSF trustee that contravenes the law and does not make appropriate efforts to rectify the situation may face significant negative implications.



By Bryce Figot
October 22, 2015
professionalplanner.com.au




7th-December-2015
Trumpet Financial Pty Ltd ABN 11 443 516 384 Corporate Authorised Representative (No 327756) of Aon Hewitt Financial Advice Limited AFSL 239183 ABN 13 091 225 642
Registered Address: Level 33  201 Kent Street, Sydney NSW 2000 | Sitemap | Disclaimer | Privacy Policy | About Aon Hewitt Positioning