What Are SMSF Administrative Penalties?

The ATO can apply a range of penalties to SMSF trustees when they breach superannuation laws and regulations (SIS). The ATO focuses on prevention rather than correction, but it will apply harsh penalties for serious non-compliance.

Prior to changes made on 1 July 2014, the ATO could issue the following penalties for funds breaching SIS:

• render a fund non-complying, which meant an SMSF would be taxed on its taxable income at 45% and incur an upfront 45% penalty on the fund’s capital value (adjusted for historical non-concessional contributions);
• apply to the court for civil and criminal penalties, which were used only for severe breaches of SIS and were not widely pursued;
• accept an enforceable undertaking from the SMSF trustee to rectify the breach without penalties;
• freezing a fund’s assets;
• winding up a fund;
• disqualify a person from being an SMSF trustee or a director of a corporate trustee.

The ATO were very reluctant to apply such harsh penalties, and very few funds were made non-complying, referred to the court, had their assets frozen, wound up or had the SMSF trustee disqualified.

Additional penalties were introduced on 1 July 2014 to ensure penalties are proportionate to the severity and ongoing nature of the breach and reflected the ATO’s prevention approach, including:

• issue an educational direction;
• issue a rectification direction by the ATO to be carried out within a set timeframe;
• impose an administrative penalty.

Scrutiny of SMSF auditors and regulations imposed by professional bodies and ASIC and the ATO has led to an increase in reportable breaches lodged with the ATO. As a result of auditor and ATO compliance activity, the imposition of administrative penalties has risen.

Breaches the ATO commonly comes across

The ATO commonly see the following breaches made by trustees:

• lending money or providing financial assistance to members and their family;
• acquiring prohibited assets such as residential property, private company shares and crypto assets from a member or relative of a member;
• accessing super early, by illegally withdrawing super before the member meets a condition of release;
• separation of assets between the SMSF and the members or trustees/directors personally.

What is an administrative penalty?

Administrative penalties are monetary penalties imposed on the trustee of an SMSF for serious breaches of the SIS Act. The law prescribes penalties for specific breaches. However, a penalty is not automatic simply because an SMSF auditor has lodged an auditor’s contravention report (ACR) with the ATO. The ATO must investigate the report and then decide whether the trustee has breached the super laws before imposing an administrative penalty. The ATO can remit penalties in part or in full. Penalties are levied on each individual trustee, whereas a single penalty is imposed on a corporate trustee, not on each individual director (each director is jointly and severally liable for that single penalty). The penalty cannot be paid or reimbursed from the fund’s cash resources and must be paid directly by the trustee/director.

What are the significant administrative penalties?

The following table summarises the more significant penalties and costs that can be imposed from 1 July 2026 under s 166 of the SIS Act. Each penalty unit is $364 from 1 July 2026; previously, it was $330.

Hint – One event may breach multiple provisions of the SIS Act.

What are some red flags identified by the ATO?

The ATO has identified some areas of concern when it suspects an SMSF may be in breach of the SIS Act.

Red flags can include:

• late lodgement of the fund’s annual return
• non-lodgement or history of late lodgement of the fund’s annual return
• poor record keeping
• history of non-compliance
• related party transactions
• not updating market valuations for property held by the fund
• mixing personal and fund assets – no clear title to an asset owned by the fund
• withdrawing member benefits early