New ATO Penalties favour Corporate Trustee Structure

From 1 July 2014 the Australian Tax Office (ATO) has been granted greater powers when dealing with self-managed superfund trustees who breach superannuation law.

The new penalty powers allow the ATO to level penalties on a sliding scale depending on the seriousness of the breach, with the maximum penalty being $10,200.

This maximum penalty is, however, based on the fund having a corporate trustee. Where a SMSF has individual trustees, each trustee would be personally liable for the $10,200 penalty. Multiple penalties could apply to the one fund for the one contravention.  Essentially, for a fund with four individual trustees, this increases the effective maximum penalty from $10,200 to $40,800.

While the potential penalties are high, the do-it-yourself label associated with SMSFs can lure investors into a false sense of security.   Superannuation law in Australia is continually changing, and it can be fairly easy to inadvertently breach the rules.  The ATO has highlighted five key areas where trustees are making mistakes:

  1. Investors providing loans to family members and friends from their SMSFs.
  2. Investments being made into in-house assets which are not solely for the SMSF.
  3. SMSF assets not being separated. In many instances they are being mixed with personal assets.
  4. Investors taking money from the fund for living expenses prior to meeting their cash requirements.
  5. Incorrect borrowing structures being established for the purchase of assets by a SMSF.

It’s important that investors understand the full responsibilities required to comply with the ATO’s superannuation laws and the associated demands as a trustee when establishing an SMSF.

Appointing an experienced corporate trustee can provide assurance that all obligations are being met.  Alternatively, investors should seek the advice of an independent expert before making any decisions in relation to their SMSF.