The Commonwealth penalty unit amount is set to be indexed on 1 January 2023 in line with the three-year indexation cycle. The monetary value of penalty unit will increase from the current $222 which has been in place since 1 January 2020, up to $275.
In a recent article, SuperConcepts executive director, SMSF technical and private wealth Graeme Colley explained that when a SMSF breaches the Superannuation Industry (Supervision) Act or Regulations, the ATO may impose these penalty units on the trustees.
Fines are calculated by multiplying the value of one penalty unit by the number of penalty units prescribed for the offence.
Mr Colley noted that the increase will only apply to offences committed after the indexation takes effect.
“As an example, the administrative penalty if a fund makes a loan to a member or relative of the member is 60 penalty units,” said Mr Colley.
“Under the current rules, the penalty is $13,320; however, from 1 January 2023, the penalty will increase to $16,500 for offences committed after that time.”
DBA Lawyers director Daniel Butler previously explained that having a corporate trustee structure for an SMSF is generally preferable due to the way these penalties are applied.
“Directors of corporate trustees are jointly and severally liable to the penalty, whereas individual trustees are each liable to a penalty,” he noted.
“This means that a corporate trustee with two directors will get one penalty overall, but two individuals will get a penalty each.”
Mr Butler also reminded SMSFs that where an administrative penalty is imposed, individual trustees or directors of corporate trustees are personally liable which means the penalty cannot be paid or reimbursed from assets of the fund.
While the ATO does have some discretion with these penalties, Mr Butler said he has seen some substantial administration penalties issued to some SMSFs.
“At times the penalty has appeared out of step with the contravention or ‘crime’ involved. A better approach for these penalties should be investigated as many people can’t afford such huge fines,” he stated.
“This really is the nail in the coffin for individual trustees. Advisers are also potentially liable and need to ensure they advise their SMSF clients of the increased risk of having individual trustees especially as some have been taking advantage of increasing the size of their fund to six; albeit some states and territories limit the maximum number of individual trustees to four.”
