Did you know that early access to super is illegal. Significant penalties can be applied if you are found guilty. Need advice?

Penalties

Regulatory penalties and sanctions

To protect members' retirement incomes, the ATO regulate SMSFs to ensure they comply with the super law. Failing to comply is known as a contravention of the SISA or SISR. This will result in some type of compliance action.

For example, The ATO can:

  • prosecute you if you've contravened the super law
  • make your SMSF non-complying
  • disqualify you as a trustee if you've contravened the super law, or
  • if you are not a fit and proper person, suspend or remove one or all of the trustees of your SMSF.

For less serious matters the ATO may enter into agreements with trustees about a plan for them to rectify the problem without necessarily imposing the above sanctions.

A complying fund that has been made non-complying will suffer serious tax consequences. Your fund's total assets (less any member contributions that no tax deduction has been claimed for) are subject to tax at the highest marginal rate. Any income in a financial year that a fund is non-complying is taxed at the highest marginal rate.

If a trustee is prosecuted and is found guilty of either a civil and/or criminal offence under a civil penalty provision, the maximum penalties that may apply under Part 21 of the SISA are $220,000 (civil proceedings) and/or five years imprisonment (criminal proceedings).

In addition, offences of strict liability (such as acting as trustee while disqualified) that are punishable under the Criminal Code can also be subject to penalties and/or imprisonment.

Administrative penalties may be applied if you:

  • fail to lodge returns on time
  • provide false and/or misleading statements
  • fail to keep and maintain records
  • fail to advise the ATO of a change of trustee or other changes in your fund.

Improper early access to super is illegal. Remember significant penalties can be applied to you, your SMSF and the recipient if benefits are unlawfully released.

Income tax penalties

An administrative penalty can be applied if you make a statement (or fail to make a statement) that results in an underpayment of tax. If you don't lodge an SMSF annual return and/or fail to make a true and correct statement, a penalty may apply.

You are liable for an administrative penalty if you make a false or misleading statement and you either:

  • take a position that is not reasonably arguable
  • fail to make a statement when required.

Depending on your conduct regarding the shortfall, the base penalty ranges from 25% to 75% of the shortfall amount or tax related liability for failing to make a statement. This penalty range is affected by circumstances such as if you:

  • voluntarily disclosed the information
  • hindered the ATO's enquiries
  • repeated the error.

Shortfall interest charge (SIC) will apply to amended income tax assessments, where a taxpayer's assessment is amended to increase the amount of tax payable. The SIC will apply from the due date of the original assessment to the date before the issue date of the amended assessment for the shortfall amount, and is due 21 days after the notice of the penalty is given.

As you can see the ATO is very serious when it comes to enforcing these rules. Are you prepared to risk your client's retirement? Nest's service is affordable, dependable and the process is simple. Just click here.

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