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ATO takes tougher breach stance

ATO trustees breaches

The ATO will give fewer warnings but more penalties to SMSF trustees over breaches of their obligations under a recalibrated enforcement model.

The ATO has signalled it will take a tougher approach to breaches by SMSF trustees and will impose more administrative penalties for those who break the law.

The new position was announced by ATO SMSF segment assistant commissioner Dana Fleming at the SMSF Association 2020 National Conference following a recent internal review of the regulator’s enforcement actions in the wake of the financial services royal commission.

Fleming said while the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) had toughened their enforcement stance, the ATO had maintained its enforcement approach but had considered how to increase its effectiveness in applying its powers.

“We felt we must review our effectiveness as a regulator and looked at the effectiveness of our powers and the impact of compliance post-application of those powers and how we could increase our effectiveness,” she told the conference being held on the Gold Coast.

“Our review was to improve our approach, but there was no dial-up around enforcement activity.”

She said the ATO’s internal review found its well-known powers to issue notices of non-compliance and to disqualify trustees had been used appropriately, but compliance with those requirements after an enforcement action needed to be improved.

“We also found there was a lack of consistency in how our full range of enforcement powers were used when dealing with a case,” she noted.

“Over the three years [of actions] we reviewed, 75 per cent of administrative penalties were fully remitted. That means, where there was a breach and where there was an administrative penalty, in three-quarters of cases there was no consequence to those trustees.”

As part of the new approach, ATO cases officers were instructed to make greater use of education directions for trustees and funds that were making efforts to correct any breaches and to also more actively consider the use of penalties, she said.

“We recalibrated our approach to remission of administrative penalties to require case officers to take into account much broader considerations when considering grounds for remission,” she said.

“The past approach was that remission should be considered if the breach was being rectified … but the consequence was that 75 per cent had no consequences of non-compliance with the law.
“We have recalibrated that approach and trustees should be aware that a breach of the law will attract a penalty.”

During the presentation, she produced figures that showed while the ATO carried out 606 proactive enforcement actions in 2017/18, that number had dropped to 482 in 2018/19, yet administrative penalties had increased from $1.7 million to $3.1 million. In comparison, for the 2020 financial year to date, the ATO had taken 364 proactive actions and imposed $3.3 million in administrative penalties.

Speaking with media after her presentation, Fleming said there needed to be consequences for SMSF trustees who breached the law.

“If people want to take responsibility for their retirement savings, there must be consequences,” she said.

“The minimum we will do in every case is provide an education direction, but if they trigger an administrative penalty, there will be a penalty of some description.

“The reality is there will now be penalties applied in these cases, but we will consider how to apply them,” she said, adding the application would vary on how much self-rectification work had been undertaken by a trustee.

She also said the new approach had been implemented since April 2019 inside the ATO and next month it would release a public note on how the approach would apply to trustees and other SMSF sector participants.

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