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What happens if your SMSF becomes non-compliant?

By Michael Walsh, CEO of Walshs Practice

If you operate a Self-Managed Superannuation Fund (SMSF), you should be aware that there are compliance obligations you must meet and that non-compliant funds may be subject to ATO sanctions or penalties.

An SMSF trustee who does not meet compliance requirements might be forced to undertake an education course to improve their ability to meet their obligations and reduce the risk of further non-compliance.

Failure to comply with an education direction can result in an administrative penalty under the Superannuation Industry (Supervision) Act 1993 (SISA) of 10 units.

The Act covers contraventions of borrowings, in-house assets, education direction, duty to notify of significant adverse events and accounts and statements, with penalties ranging from $1050 to $12,600.

The good news is that it might be possible for an SMSF trustee to rectify non-compliance by providing a written commitment to an enforceable undertaking.

That would need to include:

  • A commitment to ending the non-compliance behaviour.
  • An outline of what action will be taken as rectification and a time period in which that will happen.
  • Details on how and when the trustee will report the completion of rectification.
  • The strategies that will be put in place to prevent future contraventions.

The ATO can disqualify people from acting as a trustee due to non-compliance, taking into account the severity of the contraventions and its views on the likelihood of them happening again.

Continuing to act as a trustee after disqualification is an offence that may result in further penalties. Civil and criminal penalties can also apply when SMSF trustees contravene certain provisions of the Act.

SMSFs may be issued a notice of non-compliance when serious contravention of super laws have occurred. This causes the fund to remain non-compliant until a notice of compliance is received.

For every year the fund remains non-compliant, its assessable income is taxed at the highest marginal tax rate.

After a contravention has occurred, the trustee may wind up the SMSF and roll over the remaining benefits to an Australian Prudential Regulation Authority (APRA) regulated fund.

However, in some cases, the ATO may continue to issue the SMSF with a notice of non-compliance and/or apply other compliance measures.

A trustee may be given a notice to freeze an SMSF’s assets when it appears that conduct by the trustees or investment manager may adversely affect the interests of the beneficiaries.

The notice may restrict the trustee or investment manager from acquiring assets and disposing of assets.

 

If you would like any more information on the operation of a SMSF or advice on any other matters related to superannuation, contact Walshs on 07 32215677 or email your relevant partner.