Mitigating Compliance Risk: How the July Penalty Unit Increase to $364 Necessitates Corporate Trustee Structures for SMSFs

Effective July 1, the value of a Commonwealth penalty unit increased from $330 to $364, resulting in a direct increase to administrative penalties levied on Self-Managed Super Fund (SMSF) trustees. This adjustment alters the financial impact of compliance breaches, highlighting structural differences in how penalties are applied to individual versus corporate trustee arrangements.

Key Facts & Developments

• The penalty unit value rose to $364 on July 1, according to SMSF Adviser.
• Common SMSF administrative penalties increased from $19,800 to $21,840 as a direct result of this change.
• This adjustment represents a 231% increase in the value of a penalty unit since December 2012.

Context

The Australian Taxation Office (ATO) applies administrative penalties to SMSF trustees for specific breaches of the Superannuation Industry (Supervision) Act 1993* (SIS Act).

• Penalties are calculated by multiplying the statutory number of penalty units for a specific breach (often 60 units for common SMSF contraventions) by the current penalty unit value.
• Under SMSF regulations, individual trustees are each penalised separately for a compliance breach, whereas a corporate trustee is penalised once as a single entity.
• Administrative penalties are payable personally by the trustees or directors and cannot be paid or reimbursed from the assets of the SMSF.

Reported Impact

• As reported by SMSF Adviser, the rising cost of penalty units bolsters the structural case for SMSFs to utilize corporate trustees over individual trustees.
• In an SMSF with two individual trustees, a standard 60-unit breach now results in a combined penalty of $43,680 (calculated as $21,840 levied against each individual trustee).
• For an SMSF with a corporate trustee, the identical compliance breach results in a single penalty of $21,840 levied against the company.
• Directors of a corporate trustee are jointly liable for the single penalty, representing a 50% lower financial exposure for a two-member fund compared to an individual trustee structure.

Summary

• The July 1 increase in the penalty unit value to $364 raised common SMSF administrative penalties to $21,840.
• The penalty unit value has increased by 231% over the period from December 2012 to July 2024.
• The application of these penalties differs based on trustee structure, with individual trustees facing multiple penalties for a single fund breach compared to a single penalty for a corporate trustee.

Sources

• SMSF Adviser