Self Managed Superannuation Funds (SMSFs) – How getting it wrong can cost you.

SMSFs are surrounded by various complex and ever-changing rules. The ATO is taking compliance of SMSFs very seriously and the rules are strictly enforced to ensure the retirement savings of over 1 million SMSF members are carefully managed.

Sometimes though, mistakes can happen, and the ATO understands this and will generally work with trustees to ensure that they adhere to the rules. However, where there have been serious breaches, the ATO can enforce some costly penalties on you as trustee and your retirement savings.

There are several guidelines that the ATO use to deem the severity of a breach.

These include:

  • Trustee behaviour, ie was it a deliberate or honest mistake

  • Whether the fund’s assets were exposed to unreasonable risk

  • The impact on the fund’s assets

  • The number and duration of the breaches, and

  • How likely the SMSF will continue to be non-compliant.

There are many different avenues the ATO can take with the trustee to rectify the breach.

However, the most severe are:


While the number of funds that are made non-complying each year is relatively low, the costs associated with non-complying status are high. Basically, in the financial year the fund is found to be non-compliant, the fund loses 47% of its assets in penalty taxes. Yes, that is nearly half of the fund’s assets in tax! And in each subsequent year that the fund remains non-complying, the income generated by the fund is also taxed at 47%.


The ATO has the power to disqualify an individual from acting as a trustee or a director of a corporate trustee. Further, the ATO can also apply civil and criminal penalties in serious cases.

Administrative Penalties

Where there have been breaches to specific provisions in the legislation, the ATO can apply administrative penalties. These penalties cannot be paid from the assets of the fund, which means that the individual trustees and corporate trustees are personally liable. These penalties range from 5 penalty units to 60 penalty units and are levied on each trustee. The current penalty unit rate is $210 per unit. Accordingly, the penalties can range from $1,050 to $12,600.

The easiest way to ensure that your SMSF remains complying, is to have an SMSF expert review your fund transactions on a regular and timely basis.

At Heath Accounting Solutions, we offer a monthly or quarterly SMSF administration package. Not only does this assist the trustee to know how the fund is tracking for that period, but also to ensure that any errors are picked up early and rectified in a timely manner.

If you would like to find out more information about our SMSF administration packages, please contact us to book your free 1 hour, no obligation, consultation.

General Advice Warning – The information in this article is educational and general in nature. It does not take into consideration your personal financial or taxation information, goals and objectives. Please ensure you seek appropriate financial and taxation advice.

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