Don’t Want Your SMSF Paying Tax At 45%

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Do you know your role and responsibilities as a Trustee of a Self-Managed Superannuation Fund (SMSF)?

Ultimately YOU, the Trustee, are responsible for the judicious management of your SMSF.

Previously the incentive to maintain your complying SMSF status was to ensure the fund maintain its favourable concessional tax treatment, however now, added to that are penalties that flow through under the ATO’s penalty regime.  The penalty regime became law from 1 July 2014.

For example, if you fail to keep adequate records the minor penalty is $1,700? Are you aware that as a Trustee you may have to pay $10,200 to the ATO if you borrow money from or your Self-Managed Superannuation Fund (SMSF) lends money to a relative?

Consequences of non-compliance

1. A change in taxation rates of the fund

a. Compliant fund

i. In accumulation phase

1. Profit is taxed at a rate of 15%
2. Capital Gains (on investments held for over a year) are taxed at 10%

ii. In pension phase

1. A SMSF is taxed at a rate of 0% (on both income and capital gains)

b. Non-compliant fund

i. Income would be taxed at 45%
ii. One off tax of 45% of the net assets in the year this fund is non-compliant

2. Trustees accepting an enforceable undertaking to rectify the contravention
3. Trustee disqualification
4. Freezing of SMSF assets
5. Civil action through the court for criminal activity

The Penalty regime allows the ATO to impose three specific penalties on the trustees of SMSF:

1. Education Undertaking

a. The Trustees are required to undertake specific approved training to further their knowledge of SMSF administration

2. Contravention Rectification

a. The Trustees directed to rectify a contravention in a manner approved by the ATO in a specific time frame

3. Administrative Financial Penalties

a. Financial penalties may be imposed on the Trustees of the SMSF
b. Penalties may be imposed on each individual trustee (up to 4 trustees) or on the corporate trustee
c. Penalties range from $850 – $10,200. For example if a $10,200 penalty was imposed on the four individual trustees of a fund the total penalty could be $40,800, however, if the trustee was a company the penalty would be $10,200.
d. Penalties are not able to be paid from the SMSF. They are to be paid by the individual trustees or directors of corporate trusee.

The penalty regime is based on a unit based system for various breaches, each unit is worth $170. Common penalties for breaches will carry units that range from 5 to 60 units.

An example of some breaches and their associated penalty amounts are shown below.

Breach: Failure to comply with Tax Office education directive
Penalty Unit: 5      Amount: $850

Breach: Failure to appoint an investment manager in writing when one is appointed
Penalty Unit: 5      Amount: $850

Breach: Failure to provide information on approved form in prescribed time upon establishing fund
Penalty Unit: 5      Amount: $850

Breach: Failure to complete a form with requested information as part of ATO’s statistical program
Penalty Unit: 5      Amount: $850

Breach: Failure to prepare financial statements
Penalty Unit: 10    Amount: $1,700

Breach: Failure to keep trustee minutes for at least 10 years
Penalty Unit: 10    Amount: $1,700

Breach: Failure to keep records of change of trustees for at least 10 years
Penalty Unit: 10    Amount: $1,700

Breach: Failure to sign trustee declaration within 21 days of appointment and keep for at least 10 years
Penalty Unit: 10    Amount: $1,700

Breach: Failure to keep member reports for 10 years
Penalty Unit: 10    Amount: $1,700

Breach: Failure to notify the Tax Office of a change of SMSF status e.g. fund ceasing to be an SMSF
Penalty Unit: 20    Amount: $3,400

Breach: Lending of providing financial assistance to members & their relatives 60
Penalty Unit: 60    Amount: $10,200

Breach: Trustees have not taken reasonable steps to comply with the In House Asset Restrictions
Penalty Unit: 60    Amount: $10,200

The message is simple. Know your role and responsibilities as a Trustee of a Self-Managed Superannuation Fund. How can you do this?

1. Read articles, just like this one.
2. Ask questions if you are unsure of your position.
3. When you know the responsibilities and the ‘rules’ do not knowingly break them.
4. Most importantly seek advice from a trusted professional.
5. Follow the advice from that trusted professional when it comes to your roles and responsibilities as a trustee.
6. Give Accession3 a call 07 4613 0311.

Author: Myf Rigby

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