To maintain the benefit of concessional tax treatment, it is important for a self managed superannuation fund to be a complying fund ie it complies with all the necessary superannuation and tax laws. If the fund loses its status as a complying fund it can result in both financial and administrative penalties being imposed by the Australian Taxation Office (ATO).
Financial penalties can include the:
- income of the fund being taxed at the highest marginal rate of 45% instead of the concessional rate of 15% applicable to complying funds;
- freezing the fund’s assets which means that the trustees of the fund cannot enter into any transactions to buy or sell fund assets; and
- fund being wound up with benefits rolled over into an industry fund.
Administrative penalties can include:
- Financial Penalties imposed on the trustees that vary according to the contravention under the super law;
- Enforceable Undertakings where the trustees must confirm in writing the actions they will undertake to correct and prevent non-compliance;
- Educational Directions where trustees must undertake courses to ensure their understanding and obligations of all relevant legislation;
- Rectification Directions where the ATO will write to the trustees and notify them of the action that must be undertaken to remedy any breach; and
- the disqualification of trustees where the trustee can no longer continue to act as a trustee of the fund.
Accordingly, it is important that trustees of self managed super funds are conscious of their responsibilities and obligations under relevant superannuation and tax legislation, to ensure that their fund continues to enjoy the concessional tax benefits associated with being a complying fund.
Contributed by Minakshi Rohit.