All trustees of SMSFs have a responsibility for ensuring their fund complies with Australian superannuation legislation.  While there are various courses of action available to the ATO when a SMSF is non-complying, one course of action is the application of administrative penalties.  With the Government recently proposing to increase the value of a penalty unit for contravention offences committed from 1 January 2023, it is timely to revisit the application of these penalties.

A number of factors determine the amount of the administrative penalty, including:

• the type of contravention;
• when it occurred; and
• the number of penalty units that apply.

For example, if an SMSF contravenes a provision in relation to borrowings during the 2021/22 financial year, the ATO may apply a penalty of 60 penalty units and, at $222 per unit for that year, this would result in the SMSF trustee having to pay $13,320.  This could be even more if there are multiple contraventions.

From 1 January it is proposed to increase the penalty per unit from $222 to $275, an increase in excess of 20 per cent.

With the ATO imposing total administrative penalties of around $3.4 million on SMSF trustees last year for contraventions, it is a reminder of the importance of superfund compliance.

In addition, just because a trustee receives an administrative penalty doesn’t mean the ATO won’t undertake any other compliance action, such as issuing a notice of non-compliance or disqualifying the relevant entity as a trustee.