Setting up your own self managed super fund (SMSF) can have its benefits, but it also comes with significant obligations.
These include appointing trust members, trustees and a registered super fund auditor; valuing assets each year; paying levies and taxes; ensuring audits are conducted and minimum payments are made annually; and making lawful investments.
There’s a lot to keep on top of. If you’re a trustee and fail to comply with certain requirements under the super laws, your auditor will report the breach to the ATO within 28 days. This type of breach is known as a contravention.
Once you become aware of your contravention, you’re required to correct it as soon as possible, with the help of your auditor or your SMSF adviser if needed.
If the contravention continues to be unrectified, you can use the ATO’s “SMSF voluntary disclosure service”, and the regulator will take this into account in their final deliberations. Voluntary disclosure is a formal process involving completion of a detailed form and providing supporting documentation.
As the penalties can be quite serious, you may decide to try to mitigate the outcome by initiating an undertaking to remedy the contravention. You’ll need to document a timeframe and a breakdown of your proposed remedial action, and include strategies to ensure the contravention doesn’t recur.
There is a range of penalties the ATO can apply to a contravention depending on its severity, including:
- issuing a trustee or a director of a corporate trustee with a direction to rectify – this can lead to disqualification and/or the removal of the fund’s complying status;
- applying administrative penalties – fines of thousands of dollars can be imposed on trustees, which can’t be paid from the fund;
- where a trustee illegally accesses their super, including this accessed amount in their assessable income;
- issuing the SMSF with a notice of non-compliance, with severe tax consequences;
- disqualifying an individual from acting as a trustee or director of a corporate trustee, preventing them from becoming a trustee again;
- freezing the SMSF’s assets; and
- imposing civil and criminal penalties through the courts.
Winding up your SMSF in the event of a contravention will not stop the ATO’s compliance action.
When the ATO considers your SMSF contravention and the applicable penalties, it will take into account whether you intended to breach the law, how you communicated the contravention to the ATO and if you tried to repair it.
If it’s likely you have contravened a super law in your SMSF, the first step is to seek professional advice to ensure you keep your integrity as a trustee and the integrity of your fund intact.
