Penalty unit rise boosts corporate trustee case

penalty unit corporate trustee

The increases in penalty units during this year have strengthened the case for SMSFs to use a corporate trustee structure.

The first of two penalty unit increases for 2023 has taken effect with the dollar value of the units increasing by around $50 further highlighting the value of a corporate trustee structure.

The increase of 19.3 per cent, announced in the October budget, has pushed the value of a penalty unit to $275 from 1 January, up from $222.

This is the first increase since 1 July 2020 when units were increased from $210. That level was set from 1 July 2017 and prior to that date the value of a penalty unit was $180.

Budget documents indicate a further increase due to indexation will also take place this calendar year – at the start of the next financial year in July, and the increases would raise an estimated $44.1 million for the ATO by the 2025/26 financial year.

SMSF Alliance principal David Busoli noted the increase, and recognised its potential impact on individual trustees, and as such said it created an even more compelling reason to consider putting in place a corporate trustee structure for an SMSF given the maximum administrative penalty will now be $16,500.

“It applies to breaches of the lending, borrowings and in-house asset rules,” Busoli said in an update to clients.

“Such penalties are issued against the trustees personally and cannot be paid by the fund,” he added.

“Furthermore, though they are levied on directors as a single penalty to be paid jointly and severally by all directors, they are issued to [each and every] individual trustees,” he explained.

“Given that there may be up to six SMSF members/trustees the difference between a corporate trustee ($16,500 penalty) and individual trustees ($99,000 penalty) is eye watering and represents a compelling argument for SMSFs to utilise a corporate trustee.”

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