The Cost of Super Contraventions

The Tax Office has revealed that there was a jump in the number of auditor contravention reports issued during the 2020 financial year with a total of 36,716 contraventions reported by 12,664 self-managed superannuation funds (SMSF). 

This increase in reported contraventions resulted in the Tax Office imposing $4.1 million dollars in penalties, a rise from the $3.1 million imposed the previous financial year and $1.78 during the 2018 financial year. 

In addition to these monetary penalties the Tax Office also issued 79 enforceable undertakings, 133 education directions, 87 rectification directions, 25 notices of non-compliance and disqualifying 221 trustees.

With the increase in penalties imposed by the Tax Office, trustees are reminded that they are personally liable for any penalties imposed and must personally bear the costs of any educational directions.  Furthermore, the penalties are imposed on each and every trustee, so if an SMSF has two individual trustees, the penalties are effectively doubled.

Whilst only 25 of the 12,664 SMSFs that had reported breaches were made non-complying, the financial impact for each of members of those funds were significant.  Their retirement plans were effectively thrown out the window when the fund was made non-complying.

It’s not all doom and gloom though. Tax Office director Kellie Grant has stated that the Tax Office recognises that now is not the time to continue with their usual audit program and that they are only engaging with clients who initiate contact through their voluntary disclosure program. 

Ms Grant also reiterated that where trustees who have made genuine errors come forward and engage with them through the voluntary disclosure service, they will endeavour to resolve the issues reported, and that will minimise the financial penalties that might otherwise apply if the Tax Office were to commence an audit on the fund at some point in the future.

We highly recommended that trustees take an active approach to complying with superannuation laws and where they believe that there has been a breach of those laws, they take immediate action to rectify them. 

Taking prompt action to rectify a breach will, in most instances, assist in mitigating any penalties that may be imposed on the SMSF or its trustees.

If you have any concerns regarding your SMSFs compliance with superannuation laws, please contact one of our friendly superannuation team members.