Penalty increases an incentive to shift to a corporate trustee
With penalty units set to rise further, SMSFs with individual trustees may want to consider shifting to a corporate trustee structure, says a law firm.
In a recent online article, DBA Lawyers director Daniel Butler said with the penalty unit increasing from $222 up to $275 from 1 July 2023, this will see the typical administrative penalty imposed on SMSFs increase to $16,5000 from the current $13,200.
Mr Butler said it is therefore a good time for SMSF clients to move away from individual trustees and move to a corporate trustee before the penalties increase.
“SMSFs that have individual trustees are subject to hefty penalties and such penalties multiply as the number of individual trustees increase,” Mr Butler cautioned.
For a four member fund hit faced with a penalty for a 60 penalty unit offence, the total penalty would amount to $82,500 compared with the $16,500 penalty for a fund with a corporate trustee, he noted.
Mr Butler said the Federal administrative penalty unit which was introduced in mid-2017 has increased by 23 per cent over the three year period to 1 July 2020.
By 1 July 2023, the penalty unit will have increased by more than 50 per cent from when it was first introduced.
“The difficulty is that contraventions do not typically happen in isolation but generally happen as part of a series of events. For example, a person who borrows or accesses money from their SMSF may access several withdrawals rather than making just one withdrawal,” he explained.
“ATO Assistant Commissioner Justin Micale recently confirmed that there were around three auditor contravention reports on average for each of the 13,558 SMSFs.”
The increase in penalty units and a stricter enforcement approach by the ATO is in certain respects “the nail in the coffin” for individual trustees, he said.
“Advisers should be educating and providing information to their clients of the increased risks associated with having individual trustees.”
“This need is more important now as some SMSFs have increased their number of members given that the maximum number of members increased from four to six in mid-2021.”