Latest News

The Stronger Super measures represent the Government’s response to the review of the governance, efficiency, structure and operation of Australia’s superannuation system.

With respect to the SMSF Stronger Super measures, you need to be reminded of the critical aspects, which are geared to take effect on 1 July 2013.

We can summarize the Recommendations as follows:

1. Administrative Penalties – contraventions occurring after 1 July 2013

The Commissioner whilst responsible for the regulation of SMSFs, it was found he lacked flexible and proportionate powers to address non-compliance with superannuation laws.

The review recommended that the Regulator be provided with additional educational and punitive tools to address non-compliance with the SIS Act or SIS Regs by individual trustees or Directors of corporate trustees of SMSFs.

The proposed new law means the regulator will have the ability to issue:

• A ‘Rectification Direction’ – where the person will be required to undertake a specified action to rectify the contravention within a specified time and provide the Regulator with evidence of the person’s compliance with the direction.
• An ‘Education Direction’ – where the person is required to undertake a specified course of education within a specified time frame and provide the Regulator with evidence of completion of the course. The Regulator may approve education courses.

The regulator may issue an education direction to a person where the person’s lack of knowledge and/or understanding of their obligations has contributed to their contravening the SIS Act or SIS Regs.

Penalty Amounts

The value of a penalty unit has increased from $110 to $170 each.  Proposed penalties now range from $850 to $10,200 as per the table below:

Who pays the penalties?

The costs imposed under the proposed administrative penalty regime are payable personally by the person who has committed the breach and cannot be paid or reimbursed from assets of the SMSF.

Directors of a corporate trustee of a SMSF will be jointly and severally liable to pay an administrative penalty that is imposed on the trustee.

For Education Directions, how do you prove it’s been completed?

If a trustee or director of a corporate trustee of an SMSF undertakes a course of education in compliance with the Regulators direction, they must sign a declaration – no later than 21 days after completing the course of education – that they understand their duties as a trustee of a SMSF or as director of a body corporate that is such a trustee.

2. Acquisitions and disposals of certain assets by SMSFs and related parties – Effective 1 July 2013

These changes stem from the Regulators concerns that off market acquisition and disposal of assets between related parties and SMSFs; where the guiding mind of both buyer and seller can effectively be the same person; lacks transparency, is inherently risky and is open to greater abuse than non-related party transactions.

The changes imposed require acquisitions and disposals of assets between related parties and SMSFs should be conducted through an underlying market where one exists, or where one does not exist, must be supported by a valuation from a suitably qualified independent valuer.

Acquisition Exceptions

The SMSF will still be able to buy listed securities and business real property from the related party provided it is done via the secondary market or backed by an independent valuation.

Disposal Exceptions

The SMSF can still dispose of listed securities, business real property and collectibles provided they are done so via the second market; backed by an independent valuation report; or done so in accordance with the regulations in the case of collectibles.

Failure to meet the new acquisition or disposal rules will contravene a civil penalty provision, to which civil or criminal penalties may be sought by the Regulator.

Given these new rules apply from 1^st July 2013, it is recommended any assets likely to be sold in the ensuing years be brought forward prior to 30 June in order to avert the stricter guidelines.  This is particularly the case for collectibles and personal use assets which must be disposed off prior to 1 July 2016 under the transitional rules.

3. Market Valuations, Insurance and Asset Separation from Trustees personally

Effective from 7 August 2012, Regulation 2012 (No.2) was registered to amend the SIS Regs in the following ways:

Market Valuation Requirements

For the FYE 2013 and later income years, trustees of SMSFs must value SMSF assets at market value for reporting purposes as defined in s.10(1) of the SIS Act.

Failure to comply with this regulation will attract a penalty of 100 penalty units – which equates to $17,000.

Investment Strategy Changes

Trustees of SMSFs should consider, as part of the fund’s strategy, whether they should hold a contract of insurance that provides insurance cover for one or more members of the fund.

Trustees are now required to not only formulate and give effect to, but also regularly review the entity’s investment strategy.  Regular reviews are designed to take into account factors such as the changing circumstances of the fund and its members.

Trustees must evidence their compliance with these requirements by way of written documentation of decisions in the funds investment strategy.  A ‘regular’ review is considered to be annually.

A conviction for intentional or reckless disregard results in a fine not exceeding 100 penalty units – which equates to up to $17,000.

Separation of Assets

Trustees of an SMSF must keep money and other assets of the fund separate from any money and assets held by the trustees personally or by a standard employer-sponsor or an associate of a standard employer-sponsor of the fund.  In making this requirement an operating standard, the ATO will have a direct power to enforce this requirement under Reg 4.09A.  An example of this would be where investments such as shares are incorrectly recorded in a members own name rather than in the capacity as trustee of the SMSF.

A conviction for intentional or reckless disregard results in a fine not exceeding 100 penalty units – which equates to up to $17,000.