Breaches of superannuation rules by a trustee can have a devastating impact on a self managed super fund (SMSF) if it receives a notice of non-compliance from the ATO, including tax payable of 45% on income the fund receives while non-compliant as well as 45% tax payable in the first year on non-compliance on assets within the fund other than those that haven’t claimed a tax deduction (which has the potential to cut your fund’s value almost in half!). But what about the penalties that can be applied to you personally as a trustee? The nature and scope of the breaches you have committed will determine the severity of the penalties.
The ATO can issue administrative penalties in the form of fines payable. These penalties can vary from $850 for lesser offenses (such as failing to undertake an education directive required by the ATO) through to $10,200 for more serious breaches such as lending fund assets to members and relatives. Administrative penalties cannot be either paid for or reimbursed from fund assets – as the trustee you are personally liable to make payment.
Should they consider that you are unfit to hold the position of trustee due to the seriousness of your offenses, the number of offenses you have committed or the likelihood that you will re-offend, the ATO can disqualify you from being a trustee of a SMSF.
For serious offenses primarily relating to lending, borrowing, fraudulent or misleading behaviour and failure to satisfy the sole purpose test (that a SMSF’s sole purpose is to provide retirement funds for its members), the ATO may pursue civil or criminal charges.
In 2010, a SMSF trustee was jailed for two years, eligible for release after eight months, for failing to comply with the sole purpose test. The individual in question rolled over more than four million dollars from a large number of funds into his SMSF, then distributed the funds to a number of the other fund members, keeping more than six hundred thousand dollars for himself. An accomplice was also jailed for up to six months. While this is an extreme case involving large numbers of people and sums of money, it is clear that the ATO takes attempts to access funds early or undertake fraudulent and misleading behaviour seriously. If you are considering the role of SMSF trustee, I would strongly recommend consulting with a professional (both prior to undertaking the role and on an ongoing basis) to ensure you avoid any of the pitfalls involved with non-compliant practices.
By Jennifer Lowe
The post What can Happen When a SMSF Trustee is Non-Compliant? appeared first on Total Tax.