The latest ATO approach to SMSF contraventions


The ATO have recently released PS LA 2020/3 Self-managed superannuation funds – administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 (SISA).

SMSF Specialist Advisers do need to be warning their clients that the ATO will be enforcing these tougher penalties and there will be no forgiveness for contraventions. However good advisers should be able to guide their clients to a better outcome through the use of the SMSF early engagement and voluntary disclosure-service

This Law Administration Practice Statement provides guidelines for the administration of penalties including the circumstances they take into account when considering remission. It acts as an instruction to ATO staff and ensures a consistent and transparent approach.

Every SMSF adviser and Trustees that feel they may have straggled the line or maybe crossed it to cause a contravention should read the statement. As usual, it is the Example Appendix that is most useful and you might even read that first here 

Here are some excerpts from the Practice Statement itself:

1. What this Practice Statement is about

The purpose of this Practice Statement is to provide guidance on:

  • when an entity becomes liable to one or more administrative penalties under the Superannuation Industry (Supervision) Act 1993 (SISA)[1]
  • which entities are liable to pay the administrative penalty
  • the Commissioner’s remission considerations, and
  • objection, review and appeal rights relating to the remission decision.

The SISA sets out who is liable to the penalty, noting that the liability cannot be reimbursed from the SMSF. The penalty is imposed on the following persons:

  • a trustee of an SMSF (including an individual trustee or a corporate trustee), or
  • a director of a body corporate that is a trustee of an SMSF.[3]

2. Compliance treatments – general principles

The penalties, in conjunction with other compliance treatments under the SISA, give us effective, flexible and cost-effective mechanisms for applying appropriate sanctions.

You are not precluded from applying one or more compliance treatments within the one case. The appropriate compliance treatment depends on the circumstances of each case.

Any one or more of the following compliance treatments may also be appropriate:

  • issuing a direction to educate[5]
  • accepting an enforceable undertaking[6]
  • issuing a direction to rectify[7]
  • disqualifying an individual and prohibiting them from acting as a trustee of a super fund or as a responsible officer of a corporate trustee of a super fund[8]
  • issuing a notice of non-compliance to the fund[9]
  • seeking civil and/or criminal penalties through the courts.[10]

The following are relevant when administering these penalties (including in any review process undertaken):

  • The principles underpinning the compliance model require us to be fair to those trustees wanting to do the right thing, and being firm but fair with those choosing to disengage and avoid their taxation obligations.
  • The Taxpayers’ Charter requires us to treat a trustee as being honest. We accept that what they have told us is the truth and the information they have provided is complete and accurate unless we have reason to think otherwise.
  • Decisions must be supported by the available facts and evidence. Conclusions about the trustee’s actions or behaviour should only be made where they are supported by facts, or can be reasonably inferred from those facts.
  • The trustee will be invited to explain their actions before the remission decision is finalised and they may exercise their right to object to our penalty decision.
  • We need to be mindful of our commitment to avoid or resolve disputes as early as possible in accordance with the ATO Disputes policy and annual Dispute management plan.[11]

3. Administering the penalty

There are four basic steps in administering the penalty imposed under section 166:

  • step 1 – determine if a penalty is imposed by law
  • step 2 – determine who is liable to the penalty
  • step 3 – determine if remission is appropriate
  • step 4 – notify each trustee and/or each director of the corporate trustee of the liability to pay the penalty.

Multiple provisions breached

An unjust result may also occur in situations where multiple administrative penalties are imposed when a particular event results in contraventions of more than one provision.

The following table lists examples of possible circumstances where multiple penalties could arise under more than one provision due to a particular event, noting this is not an exhaustive list:

Circumstances or event Contravening provisions Primary contravening provision
A loan to a member or relative that was greater than 5% of the fund’s assets Subsection 65(1) for the loan and subsection 84(1) for the in-house asset Subsection 65(1)
Access to member benefits without meeting a condition of release Subsection 34(1) for operating standards and subsection 65(1) for financial assistance Subsection 34(1)

If one particular event results in multiple penalties under more than one provision, we would generally remit to a level reflecting the primary contravention. The primary contravention is determined by considering the behaviour and intention of the trustees.

Click here for access to the full PS LA 2020/3 statement

If you have read this far then I also highly recommend reading about the SMSF early engagement and voluntary disclosure-service

I applaud the ATO for giving this comprehensive guidance as so much of the concern around contraventions is not knowing how they will be dealt with and therefore people err on the side of trying to hide them!

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Please consider passing on this article to family or friends or your tax agent! Pay it forward!

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser
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Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002, NORWEST NSW 2153

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This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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