A proactive trustee who self-reports breaches of obligations and make efforts to correct them are more likely to receive favourable outcomes under penalty guidelines issued to ATO staff, according to an SMSF legal firm.
DBA Lawyers noted that while the ATO’s recently published Practice Statement Law Administration 2020/3 allowed for penalty remissions to be considered based on the behaviour of trustees before a breach, the regulator would also consider efforts to correct and prevent further breaches.
“When considering whether remission is appropriate, a case officer should consider factors that support remission and weigh them against factors that do not support remission,” DBA director Dan Butler and special counsel Bryce Figot said in a column on the firm’s website.
“The ATO states that some factors in favour of remission include good compliance history, rectification prior to ATO contact, voluntary disclosures and circumstances beyond the trustees’ control.
“The important takeaway for trustees is that having good compliance history and taking swift action to rectify a contravention will work in their favour.
“The ATO appears to welcome trustees who take initiative and this may help avoid more serious outcomes.”
Butler and Figot said trustees looking to rectify a contravention should be able to show they were now compliant with ATO requirements, any proposed or actual rectification action and steps to be taken to avoid further contraventions.
“Trustees can give an enforceable undertaking to the ATO to demonstrate how they intend to rectify the contravention and any other action they may take, such as participating in SMSF education courses,” they said.
They noted the ATO had unfettered discretion to remit all, part or none of a penalty imposed and when doing so considered the trustee’s behaviour and circumstances and whether the imposition of a penalty was defensible and just, particularly where multiple penalties may apply.
“The main objectives of the penalty provisions are to encourage voluntary compliance, promote consistent treatment and shift the behaviour of the trustee to not contravene again,” they said.
“SMSF trustees must therefore play by the rules or suffer the consequences. Trustees should obtain advice before implementing any strategy, embarking on any significant transaction or where there is any doubt.
“Where there is a contravention, timely action should be taken to minimise any adverse consequences.”
The ATO publicly released the guidance document, used by ATO staff in the application of administrative penalties, in late October after stating earlier this year its approach to remissions may have been too lenient.
