ATO gets serious with admin penalties

ATO administrative penalties

The ATO has changed its approach to the use of administrative penalties and trustees need to be aware of the implications, an SMSF expert says.

There has been a shift in the use of administrative penalties by the ATO to ensure funds comply with superannuation law and trustees are now more likely to receive a penalty for being in breach of regulations, an SMSF expert has warned.

Heffron SMSF Solutions head of SMSF technical and education services Lyn Formica said an administrative penalty could no longer be regarded as a “hypothetical threat” encouraging trustees to follow SMSF regulations.

“We are seeing a change in approach from the ATO and a growing rise in the application of administrative penalties,” Formica said in a blog post on the Heffron SMSF Solutions website.

“Requests for remission are being denied in instances of serious and/or repeated non-compliance and, in other cases, penalties are only partially remitted.

“In 2017/18, approximately $1.7 million in administrative penalties was levied. We expect this number to continue to rise.”

She pointed out ATO administrative penalties were levied per trustee and that if a fund had individual trustees, each of them would be liable to a penalty.

If the trustee of the fund was a company, a single penalty would be levied, in which case the directors would be jointly and severally liable, she added.

“This means the amount payable where a fund has two individual trustees will be twice as much as it would have been had the fund had a corporate trustee. Just another incentive for SMSFs to have a corporate trustee,” she said.

She also highlighted administrative penalties could not be reimbursed or paid from the fund, and a trustee who had been levied a penalty by the ATO would be expected to pay it out of their own pocket.

“Trustees and their advisers need to be aware of the real risk penalties will be applied if a fund breaches the law, even in cases of honest mistakes,” she noted.

“Where penalties are applied and trustees believe their circumstances warrant remission, they should act quickly to make application to the ATO.”

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