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!
And remember that trustees cannot pay the fine from the assets of the Fund.
Please give us a call if you have any questions.