How we deal with non-compliance

Encouraging compliance

We focus on encouraging trustees to comply with the super laws by helping them understand their obligations. We do this with a range of support products, including:

• guidance
• SMSF subscription updatesExternal Link
• lifecycle publications
• speeches.

There are occasions when stronger responses are required.

How we make our decisions

To ensure a fair and reasonable outcome in each case, decisions are made according to the statements and principles set out in the:

• Taxpayers' Charter, which requires that taxpayers be treated fairly and reasonably.
• Compliance model, which helps in understanding the factors and attitudes that motivate a taxpayer to comply or not comply with the law.
• Good decision-making model, which requires that the decision is legal, ethical, equitable, overt, sensible, timely, and in accordance with the principles of natural justice.

Enforceable undertaking

An SMSF trustee may initiate an undertaking to rectify a contravention.

The undertaking must be sent to us in writing. We will decide whether or not to accept it.

The undertaking should include:

• a commitment to stop the behaviour that led to the contravention
• what action will be taken to rectify the contravention
• the timeframe to rectify the contravention
• how and when the trustee will report the contravention has been rectified
• the strategies to prevent the contravention from recurring.

We will consider the following when deciding if we will accept the undertaking:

• the compliance history of the trustee
• the nature of the contravention
• whether the contravention can be rectified, and when and how this will be done
• whether the contravention had criminal consequences.

We will write to the trustee and advise if the undertaking has been accepted or not.

We may take further action if the SMSF trustee substantially fails to comply with the terms of the undertaking.

See more about enforceable undertaking in PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings.

Rectification direction

We may give a trustee or a director of a corporate trustee a written direction to rectify a contravention of the super laws.

A rectification direction requires a person to:

• undertake specified action to rectify the contravention within a specified time
• show proof of compliance with the direction.

Rectification generally involves putting in place managerial or administrative arrangements that could reasonably be expected to ensure those or similar contraventions do not occur again.

A person who fails to comply with the direction commits an offence of strict liability. This can also lead to the:

• trustee or director being disqualified
• fund’s complying status being removed, which may result in a significant tax penalty on the fund.

A trustee may request us to vary the direction. The request must:

• be made in writing on or before the period specified in the direction
• be signed and dated
• set out the reasons for the request.

A trustee may also object to our decision to:

• give a rectification direction
• refuse to vary a rectification direction.

Administrative penalties

Individual trustees and directors of corporate trustees are personally liable to pay an administrative penalty from 1 July 2014 if they contravene the following provisions of the Superannuation Industry (Supervision) Act 1993 (SISA).

Table: SISA provision and associated penalty

Provision in SISA	Description	Administrative penalty
Subsection 34(1)	Operating standards	20 penalty units
Subsection 35B(1)	Accounts and statements	10 penalty units
Subsection 65(1)	Lending to members and relatives	60 penalty units
Subsection 67(1)	Borrowings	60 penalty units
Subsection 84(1)	In-house assets	60 penalty units
Subsection 103(1)	Duty to keep minutes	10 penalty units
Subsection 103(2)	Duty to keep minutes of meetings	10 penalty units
Subsection 103(2A)	Retention of copy of section 71E election	10 penalty units
Subsection 104(1)	Duty to keep records of changes of trustees	10 penalty units
Subsection 104A(2)	Declaration of recognition of obligations and responsibilities	10 penalty units
Subsection 105(1)	Duty to keep and retain member or beneficiary reports	10 penalty units
Subsection 106(1)	Duty to notify of significant adverse events	60 penalty units
Subsection 106A(1)	Duty to notify of change in status of entity	20 penalty units
Subsection 124(1)	Written appointment of investment managers	5 penalty units
Subsection 160(4)	Education direction	5 penalty units
Subsection 254(1)	Information to be given to the regulator	5 penalty units
Subsection 347A(5)	Participation in the regulator’s statistical program	5 penalty units

The penalty cannot be paid or reimbursed from the assets of the fund.

Directors of corporate trustees are jointly and severally liable to the penalty. Individual trustees are each liable to the penalty.

Penalties may be wholly or partially remitted depending on the circumstances of each case.

Administrative penalties may also be imposed on SMSF trustees if they make false and misleading statements to us.

See more about administrative penalties in PS LA 2020/3 Self-managed superannuation funds – administrative penalties imposed under subsection 166(1) of SISA.

Raising income tax assessments

If a member has illegally accessed their super without meeting a condition of release, the accessed amount will be included in their assessable income, even if they repay it to the fund later. This means the member may have to pay:

• additional income tax
• tax shortfall penalties
• interest.

This is in addition to any administrative penalties and potential disqualification.

Disqualification of a trustee

We may disqualify an individual from acting as a trustee or director of a corporate trustee if they've contravened super laws. We can also disqualify an individual if we're concerned about their actions or suitability to be a trustee.

When deciding whether to disqualify a trustee, we take into account how serious the contraventions are, how many contraventions have occurred and how likely it is they will continue to be non-compliant.

An individual may be disqualified as an SMSF trustee for not being a ‘fit and proper person’. Personal character is considered along with the circumstances surrounding any contraventions.

We will write to disqualified trustees detailing our decision. This information is published in the Federal Register of LegislationExternal Link as a notifiable instrument. Disqualifications were previously published in the Government Notices GazetteExternal Link.

Individuals who have been disqualified from being an SMSF trustee can apply to have the decision reviewed.

You can check our disqualified trustees registerExternal Link, to see if an individual has previously been disqualified by us.

The register:

• provides information already publicly available on the Federal Register of Legislation and the Government Notices Gazette
• has functionality to help you search easily and determine if a potential trustee has been disqualified
• is updated quarterly no earlier than one month after the end of the quarter to allow trustees to seek a review of their disqualification before their names are added to the register
• includes all individuals who have been disqualified by us since 2012 (when the information was first published electronically).

When an individual is notified they have been disqualified as a trustee or director of the corporate trustee, they must remove themselves from this role.

It is an offence to continue to act as a trustee or director of the corporate trustee if you have been disqualified. Further penalties may apply.

See more about disqualification in PS LA 2006/17 Self-managed superannuation funds – disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund.

Civil and criminal penalties

We may apply through the courts for civil or criminal penalties to be imposed.

Civil and criminal penalties apply where SMSF trustees have contravened provisions concerning:

• the sole-purpose test
• lending to members
• the borrowing rules
• the in-house asset rules
• prohibition of avoidance schemes
• duty to notify the regulator of significant adverse events
• arm's-length rules for an investment
• promotion of illegal early release schemes.

We will consider the severity of the contravention, the circumstances that led to it and the actions of the individuals involved before instigating civil or criminal prosecution.

Winding up won't prevent compliance action

Following a contravention, the trustee may decide to wind up the SMSF and roll over any remaining benefits to an Australian Prudential Regulation Authority (APRA) regulated fund.

Depending on the actions of the trustees and the type of contravention, we may continue to issue the SMSF with a notice of non-compliance or apply other compliance treatments.

Notice of non-compliance

Serious contraventions of the super laws may result in an SMSF being issued with a notice of non-compliance. In this case, the fund remains non-compliant until they receive a notice of compliance.

We'll consider the following when deciding whether to issue a notice of non-compliance:

• The tax consequences and financial impact of making an SMSF non-complying.
• The seriousness of the contravention, including  
  • trustee’s behaviour
  • the effect the contravention has on the SMSF’s assets
  • the number and duration of contraventions.
• All other relevant circumstances, including  
  • if the trustee has rectified the contravention
  • the trustee's level of skill and knowledge
  • the compliance history of the fund
  • the events which led to the contravention.

Making a fund non-complying can have a significant financial impact on the SMSF because:

• for every year the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate
• in the year it becomes non-complying, it includes in its assessable income an amount equal to the market value of the fund's total assets less any contributions the fund has received that are not part of the taxable income of the fund.

For more on issuing a notice of non-compliance, see PS LA 2006/19 Self-managed superannuation funds – notice of non-compliance.

Freezing an SMSF’s assets

We may give a trustee or investment manager a notice to freeze an SMSF’s assets where it appears that conduct by the trustees or investment manager is likely to adversely affect the interests of the beneficiaries to a significant extent. This is particularly important when the preservation of benefits is at risk.

The notice may direct the trustee or investment manager not to:

• acquire assets
• dispose of assets
• deal with assets in a particular way.

We may also give a similar written notice to a person, other than a trustee or investment manager, who has possession, custody or control of an asset of the fund.

What responses can self-managed super fund (SMSF) trustees expect from us if they don't comply with super laws.