The new SMSF penalty regime starting on 1 July 2014 is an opportunity to review whether your SMSF clients with individual trustees should consider moving to a sole purpose Corporate Trustee.

We all know the main reason clients reject a corporate trustee are the initial setup and ongoing costs.  We are also too aware of the problems that arise by having individual trustees.

Under the new penalty regime there is a distinct disadvantage to having individual trustees.   Lets take the example of a SMSF lending money to a member of the Fund and thereby breaching section 65.

The ATO now has the power to issue a monetary penalty.   If the Fund has a corporate trustee, the Commissioner can levy a fine of $10,200 of which each director of the trustee company is jointly and severally liable.   However if the Fund has individual trustees, each trustee is liable to a fine of $10,200.    Imagine a scenario of a Fund with four trustees!

This approach is supported by example 2.3 in the  explanatory memorandum  to the Bill to bring about the changes.

And remember that trustees cannot pay the fine from the assets of the Fund.

Please give us a call if you have any questions.