Stronger Super measures for SMSFs: Bills introduced

Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012

Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012

The Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 (the Bill) and Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 (the Rates Bill) have been introduced into the House of Reps. The Bills seek to implement the following Stronger Super measures for the Self-Managed Superannuation Fund (SMSF) sector:

·         Administrative penalties for SMSF trustees;

·         Promoter penalties for illegal early release schemes;

·         Taxation of unlawful superannuation payments;

·         Roll-overs to SMSFs - AML/CTF obligations.

Penalties for SMSF trustees

The Bill will establish an administrative penalty regime for SMSF trustees for certain contraventions of the SIS Act. Broadly, the proposed new penalty powers are designed to provide the FCT with a "smaller stick" (via an ATO administrative decision) to "encourage" recalcitrant SMSF trustees to quickly remedy defects, rather than rely purely on the existing heavy-handed enforcement powers.

If a trustee/director of an SMSF contravenes one of the SIS Act provisions listed in proposed section 166 of the SIS Act, the person will be liable to an administrative penalty as follows:

·         60 penalty units - sections 65(1), 67(1), 84(1), 106(1);

·         20 penalty units - sections 106A(1), 34(1);

·         10 penalty units - sections 35B, 103(1), 103(2), 103(2A), 104(1), 104A(2), 105(1);

·         Five penalty units - sections 124(1), 160(4), 254(1), 347A(5).

Note: From 28 December 2012, a penalty unit will be set at $170 (up from $110). Accordingly, the administrative penalties for SMSF trustees will range from $850 to $10,200.

Any costs imposed under the proposed administrative penalty regime will be payable personally by the person who has committed the breach (and cannot be paid or reimbursed from assets of the SMSF): proposed section 168 of the SIS Act. The FCT will be able to impose the administrative penalty on an SMSF trustee using the existing machinery provisions for penalties in Division 298 of Schedule 1 to the TAA.

Rectification and education directions

The FCT will also be given the power to issue SMSF trustees with "rectification directions" and "education directions" for contraventions of the SIS Act and SIS Regulations.

A rectification direction may be given if the FCT "reasonably believes" that an SMSF trustee (or a director of the corporate trustee) has contravened the SIS Act or Regs in relation to the fund: proposed section 159 of the SIS Act. A rectification direction may require the person to take a specified action to "rectify" the contravention and to provide the ATO with evidence of the person's compliance with the direction. "Rectify" will generally involve putting into operation managerial or administrative arrangements that could reasonably be expected to ensure that there are no further contraventions of a similar kind.

  

A person to whom a rectification direction is given will be required to comply with the direction before the end of the period specified in the direction. Failure to comply with a direction will be a strict liability offence (10 penalty units). In deciding whether to give a person a rectification direction, the FCT is required to have regard to any financial detriment that might reasonably be expected to be suffered by the fund and the nature and seriousness of the contravention.

Education directions

An education direction may require a person to undertake a specified approved course of education within a specified time frame and provide the ATO with evidence of completion of the course. Trustees and directors of corporate trustees will also be required to sign or re-sign the SMSF trustee declaration form to confirm that they understand their obligations and duties as SMSF trustees. The ATO will be able to approve courses of education for the purposes of the education direction. However, a fee must not be charged for an approved course.

A person may object against a decision of the ATO in the manner and timeframe set out in Part IVC of the TAA. Unlike enforceable undertakings where a person is not limited to the undertaking it may offer the ATO, a rectification direction given by the FCT will be restricted to rectifying contraventions of the SIS Act or SIS Regulations. However, a rectification direction will not affect the operation of enforceable undertakings under section 262A of the SIS Act.

Date of effect

The amendments will apply to contraventions that occur on or after 1 July 2013.

Tax rate for unlawful payments

The Rates Bill will amend the Income Tax Rates Act 1986 to tax the "unlawful early payment remainder" of superannuation benefits received in breach of the legislative requirements at 45% (instead of the individual's marginal rate).

Date of effect

The amendments to the Income Tax Rates Act will apply to assessments for the 2013-14 income year and later income years.

Roll-overs to SMSFs

The Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 proposes to include a roll-over to an SMSF (from a superannuation fund that is not an SMSF) as a "designated service" under section 6(2) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

Under the AML/CTF Act, a reporting entity which offers a "designated service" to a customer must first carry out a procedure to identify and verify the customer before providing a designated service to the customer. The trustee of a superannuation fund (other than an SMSF) effecting the roll-over is the provider of the designated service. The customers of this designated service are the member of the transferring fund who requests the roll-over and the SMSF that is receiving the roll-over.

Accordingly, superannuation funds transferring benefits (roll-overs) to SMSFs will be required to comply with a range of AML/CTF obligations, such as:

·         Customer identification and verification of identity;

·         Record-keeping;

·         Establishing and maintaining an AML/CTF program;

·         Ongoing customer due diligence; and

·         Reporting (suspicious matters, threshold transactions and international funds transfer instructions).

Date of effect

This measure will apply to roll-overs to SMSFs made on or after 1 July 2013.

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