Trustees reminded of non-compliance penalties

The ATO has outlined how it makes decisions on SMSF compliance issues in a reminder to trustees of the consequences of failing to ensure their fund remains within all regulations.

The regulator emphasised that trustees can be personally fined for breaching some super laws which can often be thousands of dollars. In very serious cases, they can be disqualified from being a trustee, which means they can never be a trustee again.

If the breach is serious enough, a fund can be made non-complying and could lose almost half of its assets in tax and even winding-up an SMSF following a contravention won’t stop compliance action.

The Tax Office said to ensure a fair and reasonable outcome in each case, decisions are made according to the statements and principles set out in the Taxpayers’ Charter, which requires that taxpayers be treated fairly and reasonably, and the Compliance model, which helps in understanding the factors and attitudes that motivate a taxpayer to comply or not comply with the law.

Additionally, the tax office will take into account the good decision-making model, which requires that the decision is legal, ethical, equitable, overt, sensible, timely, and in accordance with the principles of natural justice.

It will also consider if the trustee and member actions were an intentional contravention, how long it took to inform the ATO of the contravention and any efforts made to fix it.

Actions that can be taken by the ATO include an enforceable undertaking in which a trustee may initiate an undertaking to rectify a contravention. 

The undertaking must be sent to the ATO in writing which will then decide whether to accept it. If accepted, it will enforce the outcome of the undertaking. In deciding to accept an enforceable undertaking, the Tax Office will consider the compliance history of the trustee, the nature of the contravention, whether the contravention can be rectified, when and how this will be done and whether the contravention had criminal consequences.

Further action may be taken if the SMSF trustee substantially fails to comply with the terms of the undertaking.

Trustees or a director of a corporate trustee may be given a rectification direction to rectify a contravention of super laws.

A rectification direction requires a person to undertake specified action to rectify the contravention within a specified time and show proof of compliance with the direction.

Rectification generally involves putting in place managerial or administrative arrangements that could reasonably be expected to ensure those or similar contraventions do not occur again.

A person who fails to comply with the direction commits an offence of strict liability which can lead to the trustee or director being disqualified or the fund’s complying status being removed, which may result in the fund having significant tax penalties.

A trustee may request a variation of the direction but it must be made in writing before the period specified in the direction, be signed and dated and set out the reasons for the request.

For trustees that receive administrative penalties, they cannot be paid or reimbursed from the assets of the fund. Individual trustees are each liable for any penalties whereas directors of corporate trustees are jointly and severally liable for any penalties. 

Additionally, individual trustees and directors of corporate trustees are personally liable to pay an administrative penalty if they make a false and misleading statement or if they contravene the following provisions of the Superannuation Industry (Supervision) Act 1993 (SISA).

The regulator also warns that if a member has illegally accessed their super without meeting a condition of release, the accessed amount will be included in their assessable income, even if they repay it to the fund later. 

This means the member may have to pay additional income tax, tax shortfall penalties and interest in addition to any administrative penalties and potential disqualification.

Keeli Cambourne

February 17 2026

smsfadviser.com