Our SMSF non-compliance actions

Encouraging compliance

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

• online guidance
• help and support for SMSFs – including SMSF specific advice
• SMSF early engagement and voluntary disclosure service
• SMSF lifecycle publications and education modules
• SMSF newsroom
• Media centre for SMSF media releases and executive speeches.

There are occasions when stronger responses are required.

If you've breached the law

Your auditor will report certain breaches of super law to us and you. This is called a contravention.

It's important you rectify any contraventions as soon as possible.

Use the SMSF early engagement and voluntary disclosure service to voluntarily disclose any regulatory contraventions that remain unrectified. Your actions will be taken into account and may reduce any penalties.

Trustees can be personally fined for breaching some super laws. This can often be thousands of dollars. In very serious cases, you can be disqualified from being a trustee, which means you can never be a trustee again.

If the breach is serious enough, your fund can be made non-complying and could lose almost half of its assets in tax.

If you decide to wind up your SMSF following a contravention this won't stop compliance action.

The compliance measures we apply will depend on the actions of the trustees and the type of contravention.

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.

We also consider the following trustee and member actions:

• Was it an intentional contravention?
• When did you inform us?
• What efforts did you make to try and fix the contravention?

Enforceable undertaking

A trustee may initiate an undertaking to rectify a contravention. The undertaking must be sent to us in writing. We will decide whether to accept it. If accepted, we will enforce the outcome of the undertaking.

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.

For more about the factors that may be considered when deciding whether to accept a written undertaking, the form that written undertaking should take, and the options for enforcing the written undertaking should it be breached, see 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 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 the fund having significant tax penalties

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

Administrative penalties may be imposed on SMSF trustees.

• Penalties cannot be paid or reimbursed from the assets of the fund.
• Individual trustees are each liable for any penalties.
• Directors of corporate trustees are jointly and severally liable for any penalties.
• Individual trustees and directors of corporate trustees are personally liable to pay an administrative penalty if they make a false and misleading statement or if they contravene the following provisions of the Superannuation Industry (Supervision) Act 1993 (SISA).

Contraventions: 60 penalty units

• Subsection 65(1): lending SMSF funds to members and relatives
• Subsection 67(1): borrowings
• Subsection 84(1): in-house assets
• Subsection 106(1): duty to notify of significant adverse events

Contraventions: 20 penalty units

• Subsection 34(1): operating standards
• Subsection 106A(1): duty to notify of change in status of entity

Contraventions: 10 penalty units

• Subsection 35B(1): accounts and statements
• Subsection 103(1): duty to keep minutes
• Subsection 103(2): duty to keep minutes of meetings
• Subsection 103(2A): retention of copy of section 71E election
• Subsection 104(1): duty to keep records of changes of trustees
• Subsection 104A(2): declaration of recognition of obligations and responsibilities
• Subsection 105(1): duty to keep and retain member or beneficiary reports

Contraventions: 5 penalty units

• Subsection 124(1): written appointment of investment managers
• Subsection 160(4): education direction
• Subsection 254(1): information to be given to the regulator
• Subsection 347A(5): participation in the regulator’s statistical program

Decisions on remission of penalties in full or part will depend on the circumstances of each case.

Find out more about when and who is liable for administrative penalties and remission considerations 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.

Notice of non-compliance

Serious contraventions of 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.

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

• it does not qualify for concessional tax rates so its assessable income is taxed at the highest marginal tax rate, which is currently 45%
• 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
• the fund will be listed as non-complying on Super Fund Lookup and will no longer be eligible to receive a rollover and employer contributions will not qualify as superannuation guarantee payments.

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 that led to the contravention.

For more on what we consider when deciding whether to issue a notice of non-compliance, see PS LA 2006/19 Self-managed superannuation funds – notice of non-compliance.

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 consider how:

• serious the contraventions are
• many contraventions have occurred
• 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’. How we determine this is covered in the 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. 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 publicly available information from the Federal Register of Legislation and the Government Notices Gazette
• has search functionality to help you 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.

For more information about what we consider when making a decision about disqualification, see 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.

Freezing SMSF assets

We may give a trustee a notice to freeze an SMSF’s assets. This can occur where it appears that conduct by the trustees or a third party such as an investment manager is likely to have a significant negative impact on the beneficiaries' interests. This is particularly important when the preservation of benefits is at risk.

The notice may direct that assets are not:

• acquired
• disposed of
• dealt with in any particular way.

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

Before instigating civil or criminal prosecution, we will consider the:

• severity of the contravention
• circumstances that led to it
• actions of the individuals involved.