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ATO, Compliance & Regulation

Trustee steps to shape penalties

trustee penalties

The ATO will consider the consistency of a trustee’s behaviour in determining when penalties for breaches will be waived under newly released guidelines.

The consistency of trustee behaviour will play a key role in determining if the ATO offers any form of remission in circumstances where a breach of obligations would lead to the imposition of penalties, according to newly released internal guidelines.

The ATO made the guidelines – Practice Statement Law Administration 2020/3 – public late last week, noting it was an “internal ATO document and is an instruction to ATO staff” providing “guidelines for the administration of the penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) (SIS) Act 1993 for contraventions in relation to self-managed superannuation funds”.

Under instructions regarding the administering of a penalty, the guidelines make provision for determining if a remission is appropriate and what factors ATO staff should consider when making that decision, including trustee behaviour and how that compares to their obligations under the SIS Act.

“You should consider if the trustee has acted in a way that would reasonably be expected of another trustee in the same circumstances. The fact that the trustee genuinely tried to act with care and diligence is not the test,” the guidelines said.

“A trustee who acted in accordance with paragraph 52B(2)(b) [of the SIS Act] by exercising the same degree of care, skill and diligence as an ordinary, prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide, would be considered to be acting reasonably.”

The guidelines also take into consideration the experience of trustees while noting they have self-declared their ability to manage a fund and comply with their legal obligations.

“Your decision should take into account the individual circumstances of each case, giving appropriate consideration to the background and experience of the trustees and/or directors, as well as their intentions surrounding the circumstances of the contravention,” they stated.

“In considering this factor, it should be acknowledged that all trustees and directors of corporate trustees of SMSFs are required to sign a declaration upon setting up their SMSF that they understand their duties.

“Furthermore, all trustees are subject to other covenants under section 52B, and fiduciary duties and obligations under general trust law. Each trustee is ultimately personally responsible for ensuring their fund complies with the [SIS Act] and other relevant legislation.”

Other areas ATO staff can consider in granting a remission of a penalty include the seriousness of the contravention, what change in behaviour the imposition or remission of a penalty would have on a trustee, and the impact of multiple penalties for a single breach of obligations.

“These are not exhaustive and are not intended to prescribe the only relevant factors,” the ATO stated in the introduction to the guidelines.

“They are intended to encourage an analytical approach to each case and the application of sound judgment in making a remission decision.”

Earlier this year, then-ATO SMSF segment assistant commissioner Dana Fleming said the remission of penalties had been applied too easily by the regulator and stricter measures, using these guidelines, would come into force.

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