Trustees must comply with rectification orders in time or face penalties
Although the ATO is not presently issuing education directives to trustees who may have breached compliance laws, it is handing down rectification directions that must be acknowledged and met or penalties will apply, says a leading SMSF auditor.
Shelley Banton, head of education at ASF Audits, said the ATO is currently putting together a Practice Statement on education directions which is scheduled to come out in early 2024.
“Under an education direction, the trustees have to take a free, approved education course that has previously been provided to the ATO by external stakeholders,” she said.
“These have all now been withdrawn and the ATO is in the process of developing its own online course, so no education directions are being issued until the ATO has that course ready to roll out.”
Ms Banton said the first PS release that came through this year was PSLA 2023/1, which dealt with the ATO giving SMSF trustees a rectification direction for a compliance breach.
“Given that we’re not seeing any education directions come through until the end of this year, we may well see more of these rectification directions come through,” Ms Banton said.
“What this PSLA says is that the ATO expects trustees to take rectification directions seriously and most important get them done within a defined timeframe, which is outlined in the rectification direction.
“This can mean the difference between the ATO issuing further penalties or even a notice of non-compliance.”
She said a rectification direction is a written direction from the Commissioner that requires a person to do two things: take specified action to rectify the contravention and provide the ATO with evidence that they complied with that direction.
“The specified action could be in the form of repaying a loan or borrowing, disposing of an asset or even lodging a return,” she said.
“And don’t forget, the trustees have to provide the ATO with the documentation proving that they’ve complied with that direction.”
Ms Banton said the ATO can’t impose an administrative penalty for failure to comply with the rectification direction, but they can consider other compliance actions.
“That could be trustee disqualification, for example. However, failure to comply with a rectification direction within the specified timeframe, which is stipulated in the rectification direction, usually about six months, or could possibly be extended to 12 months, carries a maximum of 10 penalty units, which is currently worth $2,750.
“We have a little twist here that says the ATO can’t ping you for not complying with the rectification direction, but it can if you don’t comply within the timeframe outlined.
“That’s not the ATO ruling. That’s what SIS says so we can’t blame the ATO on this one. “And of course, the best action is always to be proactive, rectify the contravention before the ATO gets in contact because the alternative is always going to be a tad more painful.”
