SMSF Penalties – How Much They Cost, And How To Avoid Them

Self-Managed Superannuation Funds (SMSF) have become increasingly popular over recent years because they offer greater control. This increased control means you can make the fund work better for you. But that control also means you have more responsibilities and, if you fail in those responsibilities, penalties can be applied.

It is important to remember who is responsible. The short answer is that you have ultimate responsibility, even if you employ accountants or advisors. If you breach one of the rules, it is you who will have to pay.

These penalties came into force on 1 July 2014, so they apply to everything that happens in your super from that date. The penalties fall under three main categories, and the Australian Tax Office (ATO) can make you do any one of them, or a combination of the three. These include making you:

  • Complete an education course to improve your knowledge of SMSFs, and get a better understanding of your role as a trustee. These courses are compulsory and you have to undertake them at your own expense;
  • Rectify breaches;
  • Pay a fine, known as an administrative penalty.

The fines start at $850 for rule breaches such as failing to appoint an investment manager in writing. At the other end of the scale are fines of $10,200 for things such as lending money to another SMSF member.

The way the ATO works this out is on a penalty points system. In other words, it has allocated penalty points to each rule breach. In the examples above, failing to appoint an investment manager in writing gets five points, while lending money to another SMSF member gets 60 points. At the moment each penalty point is worth $170 - so 5 x 170 = $850.

Here are some of the common rules and the current penalty amount:

  • Lending to SMSF members and relatives - $10,200
  • Borrowing from the super fund, unless it qualifies for an exemption - $10,200
  • Failing to take reasonable steps to comply with In House Asset Restrictions - $10,200
  • Not notifying the ATO when something significantly affects your fund's financial position - $10,200
  • Not notifying ATO if your fund changes status - $3,400
  • Not preparing financial statements - $1,700
  • Not keeping trustee minutes for at least 10 years - $1,700
  • Not signing a Trustee Declaration as required - $1,700
  • Not keeping member reports for at least 10 years - $1,700
  • Failing to undertake an ATO education directive - $850
  • Not appointing an investment manager in writing - $850
  • Not providing establishment or statistical information when requested by ATO - $850

One final thing to note is that the penalties can be applied to each individual trustee of an SMSF, and it can be for more than one year. In other words, it can add up to a lot more than in the list above. For example, if you don't prepare financial statements for two years and you have three trustees, the overall fines for the breach could be $10,200, not $1,700.

The easiest way to avoid the fines, however, is to make sure you do not breach the rule




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