Shaun Backhaus, senior associate at DBA Lawyers, said although there is case law around penalties and remission, the ATO document outlines the most important aspects of what an SMSF trustee should do.
“The ATO’s Practice Statement PS LA 2020/3 outlines grounds for remission of administrative penalties imposed via section 66 of the SIS Act. Remission may be sought, for example, where there is a series of contraventions relating to the same matter.
“One of the most common courses of action follows the totality principle, if there were a series of contraventions that relate to the same course of conduct or the same events, that could be partially remitted to just be one penalty,” he said.
“The penalties can add up over three to four years and can be over $500,000 which can be pretty confronting but it’s important to remember that personal liabilities for the trustees or directors of the corporate trustee come out of the fund and a lot of people won’t have that amount of money just sitting around.”
Backhaus said the most common administration penalties relate to operating standards, financial statements, lending or borrowing and in-house assets. The ATO last year warned it would be increasing the cost of infringements from $313 to $330.
The increase to $330 was announced in the 2023-24 Mid-Year Economic and Fiscal Outlook (MYEFO) released on 13 December 2023 and will apply to offences committed after the start date once the legislation is finalised. The penalty unit amount will then be indexed every three years in line with the consumer price index.
Penalty units can be applied by the ATO for lending to members or relatives, borrowing, and failing to comply with in-house asset rules. All of these attract 60 penalty units.
Infringements that attract 10 penalty units include failing to keep minutes and records of changes of trustee.
ATO records confirm that contraventions generally occur in multiplies rather than as once-off events as there were, for instance, around three auditor contravention reports for each SMSF for FY2022 with a total of around 40,000 ACRs for the 13,558 funds or around 2.95 per fund.
“There is an advantage to having a corporate trustee when it comes to these penalties,” he said.
“Often there’s multiple contraventions being reported. If someone’s got loans or in-house asset issues, they probably haven’t done their returns, or multiple withdrawals or loans in at the same time, there can be contraventions for each withdrawal. For an SMSF that is structured between two individuals and they have three of those 60 type unit contravention penalties, that can add up to $60,000.”
