Navigating the SMSF penalty unit increase: why it may be time to consider a Corporate trustee structure
As an SMSF trustee, it’s crucial to be aware of the changes influencing the management of Self-Managed Super Funds, especially those that pertain to penalties for breaches. The Australian government, in its Mid-Year Economic and Fiscal Outlook (MYEFO) for 2023-24 announced a 5.4% hike in the Commonwealth penalty unit amount, from $313 to $330, set to be effective four weeks after the passage of the legislation. This increase will be applicable to offences committed post the implementation of the legislative amendment.
What is the difference between SMSF individual trustee and corporate trustee?
Individual trustees are regulated under the pensions power within Australia’s Constitution, while a corporate trustee is subject to the Corporations Act 2001.
Should your SMSF have a corporate trustee or individual trustees?
An SMSF can either have a corporate trustee or individual trustees. An SMSF can have up to 6 members, and generally speaking, the members must be the same as the individual trustees (or the same as the directors of a corporate trustee).
What are administrative penalties?
The ATO can impose penalty units for a range of reasons such as lending to members or relatives, borrowing with exceptions, non-compliance with in-house asset rules, failing to keep minutes or failing to keep records of changes of trustee. Each of these examples carry a 60 unit penalty, now $19,800 (60 penalty units x $330), up from the previous $16,500 (60 penalty units x $275).
How are administrative penalties levied?
Individual trustees
If super laws are breached, administrative penalties are levied on each trustee.
Corporate trustee
If super laws are breached, administrative penalties are levied on the corporate trustee.
Our advice
SMSF trustees need to exercise caution, not only due to the increased penalty amounts but also the higher likelihood of contraventions being discovered, given the ATO’s increased scrutiny on SMSF auditors.
This landscape of heightened penalties and enforcement makes a compelling case for a shift towards a corporate trustee structure for every SMSF.
Talk to us now if you have questions about management of your SMSF.