Corporate trustees key to combating penalty rise
A rising incidence of penalties being issued to SMSF trustees for compliance breaches highlights the value of a corporate trustee structure if SMSF members run afoul of the ATO, according to an SMSF specialist law firm.
DBA Lawyers’ Daniel Butler told SMSF Adviser the firm had noticed more penalties being issued by the ATO in recent months rather than the less punitive education or rectification directions, which could be a particularly expensive exercise for multi-member funds.
“The ATO’s general practice is to give a penalty on each incident, so if you withdrew $20,000 in four instalments there would be four events and a $12,600 penalty for each, and if there’s two trustees you double that amount,” Mr Butler explained.
“One clear message for SMSFs is you should always make sure you comply with the regulatory provisions. However, if you do contravene any super rule, it's best to have a corporate trustee because in that case it’s one fine of $12,600, but if you have individual trustees, and around 70 per cent of those funds have two members, you have a lot that could be subjected to admin penalties where you double that amount.”
With the most recent ATO statistics showing 59 per cent of SMSFs used a corporate trustee, Mr Butler said many funds were still leaving themselves exposed to a potentially costly and time-consuming process to fight administrative penalties through the legal system.
“If the fine is less serious and it’s handled at the adviser level it might take three to four months to resolve, but the cases we handle could take up to 24 months, because we have to go through a lot of forensic material, work out the submission and at times get barristers involved,” he said.
“The time and the amount of money involved in doing that can at times be hundreds of thousands of dollars, so these are serious threats and they can sink people, particularly because they often come in batches.”
However Mr Butler was hopeful the process to seek remission for penalties could be simplified with the release of new guidelines from the ATO around trustee liability, due in September.
“The new administration practice statement will guide ATO officers in respect of how to administer the penalty system, so I would suspect this might be to drive transparency and consistency because these are going to be public documents,” he said.
“That would give more direction to officers and assist advisers to go in and say we feel the penalty should be a bit lower.”