Self Managed Super Fund Trustees on Notice: New ATO Powers from 1 July 2014 - 1st July 2014

The Australian Taxation Office (ATO) will have new wide ranging powers from 01 July 2014 to deal with Trustees of Self Managed Super Funds (SMSF's) who breach the rules governing super funds. Previously the ATO only ever had powers to ignore the breach or to heavily penalise the Trustees by taxing almost half of their Super Fund. It was an all or nothing approach with nothing in between.

From 01 July 2014 the ATO will be able to deal with noncomplying Trustees in a range of ways that include:

1. A Rectification Direction - they will specifically direct Trustees to rectify an error they made. This could include to fix a bank account in the wrong name, or to collect money loaned to a member, etc.

2. An Education Direction - sadly some Trustees run a super fund with little or no knowledge of the rules governing super funds. This measure could include the ATO directing the Trustees to undertake a certain number of hours education on running a Fund. Interestingly, the ATO have not yet finalised details on who will actually run these training sessions as the major superannuation educators have indicated they will not do this for free.

3. An Administrative Penalty - a straight fine for non compliance. Currently this penalty is up to 60 Penalty Units where one Penalty Unit = $170. Therefore Trustees could face penalties of up to $10,200 for a serious breach. This penalty is levied on each Trustee, so if a fund has several individuals as Trustees, it could get expensive.

The new penalty regime has been developed in consultation with the superannuation industry to achieve a fairer punishment to fit the crime approach compared to the all or nothing approach before 30 June 2014. Commentators have already noted that the new penalties will test the relationship between Trustees and their advisers to the limit with pressure being placed on auditors not to qualify audits. Even advisers are being targeted under the new rules to provide the ATO with a professional considered opinion on a breach.

Testing times indeed and we don't mean just for the suits that carry a green pen.