SMSF penalty regime – is it really new? Trustees and advisers beware!

1 July 2014 saw the commencement of the new administrative penalty regime, introduced to give the ATO options for trustees who breach the Superannuation Industry (Supervision) Act 1993 that are not as extreme as making the SMSF non-complying.

However, the October 2014 case of Deputy Commissioner of Taxation (Superannuation) v Graham Family Superannuation Pty Ltd [2014] FCA 1101 and the January 2015 case of Olesen v Early Sunshine Pty Ltd [2015] FCA 12 suggest that perhaps those rules were not necessary, as there was already power to financially penalise trustees of SMSFs for certain breaches.

In Graham’s case the conduct that gave rise to the penalties occurred between August 2007 and February 2013, and involved:

• 80 loans from the SMSF to the members;
• allowing the members’ children to live rent free in residential property owned in the SMSF; and
• late lodgement of returns.

The directors of the corporate trustee of the SMSF were ordered to pay monetary penalties totalling $40,000, and contribute $10,000 to the costs of the ATO.

The directors were also disqualified from being trustees or responsible offices of corporate trustee of superannuation entities. However, the ATO did not make the SMSF non-complying.

In the Early Sunshine case, the trustees were also guilty of committing similar breaches. Over a 4 year period, the trustee made a significant number of small unsecured loans totalling $553,568.20 to a company controlled by the members of the SMSF. No interest was charged on any of these loans, each of which was repaid in full in a matter of a few weeks.

The trustee also made a $2,000 loan to another related entity of the SMSF. This loan was also unsecured but interest was paid at 8.5% per annum.

Each director of the corporate trustee of the SMSF was personally ordered to pay monetary penalties totalling $13,000 and contribute $5,000 to the costs of the ATO.

The penalties imposed could have been much higher (up to $220,000 per breach) but, as the parties co operated with the ATO, there was no loss of capital and the SMSFs were wound up, lower penalties were considered appropriate.

These cases are a reminder of powers that exist to penalise trustees, which, although infrequently used, are still available even for breaches prior to 1 July 2014.