SMSFs, new ATO penalty regime and family law

Family Law: 23 March 2019

From 1 July 2014, a new regime applies to potential penalties that may be imposed by the Australian Taxation Office (ATO) against trustees of Self-Managed Superannuation Funds (SMSF).  SMSFs in Australia have increased over time from approximately 375,000 in June 2008 to 510,000 in June 2013 (see, Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014).

The ATO has the power, which they can apply to actions prior to 1 July 2014, to declare contraventions on behalf of a SMSF and impose certain actions including administrative penalties, education directions or rectification directions. 

The level of penalty will vary according to the type of breach with directors of a corporate trustee to an SMSF being jointly and severally liable for any administrative penalty imposed.  Education directives may require a trustee to undergo a specific course of study relating to their obligations and duties as trustee.  Rectification directives may require a person to take certain steps to deal with a contravention within a certain timeframe.  

The cost of complying with any administrative penalty and/or education directive is borne by the trustee alone - the governing rules of the SMSF will be void in so far as they seek to exempt, or indemnify, a trustee of the SMSF from liability. Where there is a family law breakup and one trustee of the SMSF is being denied access to the SMSF's records, there may be good grounds to seek remission of any penalty on the basis the trustee had no reasonable way to control or stop a breach from occurring. 

Any requests for remissions of penalty would still be considered on a case by case basis.  All efforts possible should be made to ensure that the SMSF continues to be compliant even during a family law proceeding.  Any orders for indemnification from tax liabilities by one trustee against the other trustee in a family law proceeding should also be drafted to require such payments to be made by the trustee and not from the SMSF.