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What happens if your SMSF is non compliant?

While there are benefits to running an SMSF, they do not come without their compliance responsibilities. This includes lodging your fund’s annual return on time, attending to reporting obligations, and having an investment strategy. SMSFs who do not meet their obligations are subject to penalties by the ATO through the following measures.

Education direction

An SMSF trustee who does not meet compliance requirements can be given a written direction to undertake a course of education that is designed to improve their ability to meet their obligations, reducing the risk of future non-compliance. The course may be completed online within a nominated timeframe. Failure to comply with an education direction can result in an administrative penalty of 10 units.

Administrative penalties

SMSF trustees are liable to pay administrative penalties if they contravene provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). This includes contraventions of borrowings, in-house assets, education direction, duty to notify of significant adverse events, and accounts and statements. The minimum penalty is $1,050 and the maximum penalty is $12,600.

Enforceable undertaking

SMSF trustees may be able to rectify non-compliance by providing a written commitment to an enforceable undertaking. The ATO may or may not accept the undertaking, which should include:

Rectification direction

The ATO may decide to provide a trustee with written direction to rectify their contravention. The trustee will then be required to undertake specified action to rectify the non-compliance within a given timeframe. Rectification commonly involves employing managerial or administrative arrangements that will prevent similar contraventions in the future. Proof of compliance with the direction to rectify will be required. Failure to comply with the direction is an offence of strict liability, which can lead to disqualification or the removal of the fund’s complying status which may result in a significant tax penalty on the fund.

Disqualification

The ATO has the ability to disqualify individuals from acting as a trustee due to their non-compliance. This will take into account the severity of the contraventions and the likelihood of them reoccurring. Continuing to act as a trustee after disqualification is an offence that may result in further penalties.

Civil and criminal penalties

Civil and criminal penalties through court can apply when SMSF trustees contravene with provisions such as:

Non-compliance notice

SMSFs may be issued a notice of non-compliance when serious contravention of super laws have occurred. This causes the fund to remain non-compliant until a notice of compliance is received. For every year the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate.

Winding up the fund

After a contravention has occurred, the trustee may wind up the SMSF and roll over the remaining benefits to an Australian Prudential Regulation Authority (APRA) regulated fund. However, in some cases, the ATO may continue to issue the SMSF with a notice of non-compliance and/or apply other compliance measures.

Freezing the SMSF’s assets

A trustee may be given a notice to freeze an SMSF’s assets when it appears that conduct by the trustees or investment manager may adversely affect the interests of the beneficiaries. The notice may restrict the trustee or investment manager from acquiring assets and disposing of assets.

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News

High School Students, It’s Time To Get Creative About Tax & Super

June 16, 2021

The ATO’s Tax, Super + You competition is a fun and engaging way for Australian high school students to learn about tax and super, unleash their creativity and potentially win some great prizes.

Working as a part of a team or individually, students are invited to write, make or film an entry for their topic:

* Junior (Year 7–9) are asked to highlight the value of tax or super (or both) in the community

* Senior (Year 10–12) must discuss your first job and what you need to know about tax and super.

Shortlisted entries in 2019 included raps, songs, animations, video skits and even a board game. If you’re a high school student interested in competing this year or are the parent of one, this resource is a great way to see how people have gotten involved previously (and that you can draw inspiration from as well).

The competition opened on 24 May, but entries will be accepted until 13 August. The winners will be decided by a judging panel, including guest judge Effie Zahos who is one of Australia’s leading personal finance commentators. The public can also vote for their favourite entry in the People’s Choice Awards.

Tax Office Assistant Commissioner Sally Bektas said she was thrilled to be back on the judging panel.

“Our Tax, Super + You competition has really shown that building financial literacy can be fun and bring out the best in students. I’m so excited to see the entries for 2021,” Sally said.

You can watch Sally explain how to get involved on ATOtv.

Winners of the 2021 Tax, Super + You competition will be announced in September.

Looking for more information about the 2021 Tax, Super + You competition? Visit www.taxsuperandyou.gov.au/competition to find out more details.