This includes breaches that may be inadvertent. This new legislation received Royal Assent on 18 March 2014 and will make new penalties available to the ATO for breaches that occur on or after 1 July 2014.

The legislation will also apply to contraventions that were made prior to 1 July 2014.

Examples of breaches of law include:
• loan to a member of the fund
• failure to prepare accounts in a year of income
• failure to keep minutes

The new penalties are designed to make it easier for the ATO to impose a monetary penalty on trustees who breach the law. The penalties will range from $850 to $10,200 depending on the type of breach that has occurred.

This monetary penalty will apply to the trustees personally and cannot be paid using the super fund’s assets.

The ATO has stated that if trustees are making progress in resolving the contravention by 1 July 2014 it will consider these circumstances in any request to remit any imposed administrative penalties.

These new penalties represent a significant change for SMSF trustees. The ATO’s ability to issue monetary penalties in the past has been restricted due to the severity of penalties available to them.

It is expected that the ATO will adopt a practice of imposing administrative penalties and require trustees to demonstrate that the penalty was unwarranted.

These changes have increased the risk that trustees will be exposed to financial penalties if a breach of the law occurs, so it is important that trustees ensure that they are vigilant in meeting all compliance requirements.

If you would like to discuss these chanes with our SMSF team then please do not hesitate to contact this office.

Disclaimer

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According to Andrew Frith of the Self-Managed Super Specialists, headquartered in Newcastle NSW, it was refreshing to hear the Commissioner of Taxation, Michael D'Ascenzo, in his speech to the SMSF Professionals Association of Australia (SPAA) in February 2011, say that the ATO's "consistent message both to our people and to the community is to take care of family, friends, community and property first.  We can sort out tax and super issues later."

This was said following the devastating floods in Queensland, Victoria and Western Australia.  We have recently added the Illawarra and South Coast of NSW to this list.

One of the specific ways the Commissioner indicated assistance to self-managed super funds is where the fund may have acquired what are now flood or cyclone damaged buildings, in which case the ATO, in determining what is a repair or an improvement, whilst not having "a discretion to treat what is an improvement to be repaired, or a repair to be an improvement", they "will not be seeking to make fine distinctions having regard to what is available to repair what has been damaged".

The Commissioner went on to say "In financing repairs or incurring other costs, SMSF trustees may need to borrow funds and if SMSF trustees contravene the limited recourse borrowing provisions due to the natural disasters experienced Australia-wide, we would be favourably inclined to exercise the Commissioner's Discretion under section 42A(5) of the Superannuation Industry (Supervision) Act 1993 (SISA) to continue to treat the super fund as complying. 

Mr D'Ascenzo added "We are currently reviewing this matter with APRA and Treasury to ensure no unintended consequences arise."

Andrew Frith commented further how important it is for the taxpayer to know that there is human thought and a caring attitude behind the enormous bureaucracy that is the ATO.

Andrew Frith is the Chief Executive Officer of Leenane Templeton The Self Managed Super Specialists Pty Ltd.  Located in Newcastle, NSW, Australia.   Visit  Self Managed Super Funds web site for further information or visit our Newcastle Financial Planning Self Managed Super Fund Page.

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