The Tax Office has published a list of the top 10 compliance mistakes that SMSF trustees make when running their funds. The list is based on the type of contraventions reported by approved SMSF auditors between 2005 (when contravention reporting started) and up to June 30, 2012.
The top 10 contravention types (although admittedly one of them is “other”) in percentage terms are as follows:
An interesting observation is that of the top 10, three types of contravention represent more than two-thirds of the proportion of asset values (67.8%) involved in the most frequent contraventions. These are:
- in-house assets
- separation of assets
- loans to members/financial assistance.
When looking at the number of contraventions, a little under two-thirds (64%) involve four of the top 10. These are:
- loans to members/financial assistance
- in-house assets
- administrative-type contraventions
- separation of assets.
The Tax Office has the following options when dealing with an SMSF contravention issue:
- making an SMSF non-complying for taxation purposes
- applying to a court for civil penalties to be imposed — a person may also face criminal penalties for more serious breaches of the law
- accepting an enforceable undertaking in relation to a contravention, and
- disqualifying a trustee of an SMSF.
As well, the Tax Office can issue the following:
- rectification and education directions for contraventions, and
- an administrative penalty regime for SMSF trustees for certain contraventions.
A rectification direction will require a person to undertake specified action to rectify the contravention within a specified time and provide the Tax Office with evidence of the person’s compliance with the direction.
An education direction will require a person to undertake a specified course of education within a specified time frame and also provide the Tax Office with evidence of completion of the course.
Where an administrative penalty is imposed it must be paid personally by the trustee or the director of the trustee company and cannot be paid or reimbursed by the SMSF. A table of some of the provisions that will attract the administrative penalty follows:
