The powers provided to the Australian Taxation Office (ATO) to deal with issues of non-compliance by SMSF trustees has been reasonably inadequate, something that was acknowledged by the Cooper Review Panel as part of the Super System Review. The ATO in many respects had been known to have two options in dealing with trustee contraventions:
- the “feather duster”approach – where limited penalties or undertakings could be applied against SMSF trustees ;or
- the “nuclear”option – where fund’s were made non-complying for more serious breaches
A key outcome from the Stronger Super reforms to take effect from 1 July 2012 is the greater powers to be provided to the Regulator when dealing with contraventions by SMSF trustees. Currently, where the fund trustees have contravened part of superannuation law, it is the trustee that may enter into an Enforceable Undertaking (EU) with the ATO to remedy the breach. The Regulator may then accept or reject the enforceable undertaking from the trustee.
This however changes from next financial year, where new powers will allow the ATO to direct a SMSF trustee to rectify a contravention where it remains unrectified. These powers will provide the ATO with greater capabilities to improve the timeliness and efficiency of remedying these issues.
These powers will range from providing penalties and sanctions on fund trustees, where SMSF Annual Returns may be outstanding or more serious breaches including loans to members, in-house asset issues or breaches of financial assistance. Part of this rectification process may also require SMSF trustees to undertake mandatory education to continue to carry on their role as a trustee.
Since taking over as Regulator of SMSFs in 2000, the ATO has taken an educative approach to ensure trustees understand and comply with superannuation law and their ongoing statutory requirements. Whilst the education process plays an important part in the overall ATO compliance program, we will expect to see a greater role in enforcement to protect the integrity of this burgeoning superannuation industry.