The theory of cognitive dissonance tells us, very broadly, that when people hold conflicting beliefs they will attempt to reduce the dissonance by altering or adding to their beliefs, ideas etc., to create harmony.  Harmony is good.  In this article, we look briefly at some of the beliefs that SMSF trustees hold notwithstanding superannuation law and publicity on that law.  We then briefly look at something looming on the SMSF horizon to help trustees achieve inner peace.

Dissonance and SMSFs

Most trustees can recite the mantra that superannuation savings “are yours, but not yet”, understand that superannuation is all about saving for retirement and understand that the Australian Taxation Office (ATO), as the regulator for SMSFs, can work to see that harsh penalties are enforced against errant fund trustees.  At the same time, many trustees also seem to hold beliefs (or act regardless) clearly in conflict with these notions.  Contra beliefs that I have come across in working with SMSF trustees include:

  • That the ATO is obliged to accept a trustee’s undertaking to rectify compliance issues when either faced or issued with a non-compliance notice;
  • That the ATO is obliged to enter into negotiations with a trustee with respect to rectification processes;
  • It is or should be relevant to the law that any requirement for a fund to be immediately repatriated will cause financial loss to the fund members;
  • It is or should be relevant to the consideration of non-compliance that as a consequence of particular illegal and/or inappropriate dealings a fund has performed well, as far as return is concerned, as compared to the national average over time;
  • The ATO is or should be obliged to temper any requirement for the winding up of a fund in the face of non-compliance against the retirement intentions or timetable of the members;
  • The issuing of a notice of non-compliance is ‘the end of the matter’;
  • The ATO is or should be obliged to ignore prosecution even when it does accept an enforceable undertaking as to the conduct of a fund.

The immediate thought when faced with the above responses in conversations with trustees on compliance and enforcement is, rightly, “wrong”.

Moves afoot to restore balance in the trustee’s life

New law is tabled to commence on 1 July 2013 that, while not perhaps motivated from the point, has the potential to help trustees move from the discomfort of cognitive dissonance to a more peaceful place on the ‘right’ side of the superannuation fence.

A part of that law is the new “education” rule.  This came out of the Super System Review and is part of a group of reforms designed to strengthen the ability of the ATO to deal appropriately with fund trustees who have breached superannuation law.  It addresses the view that the existing regime does not include sufficient flexibility for the proper regulation of the SMSF sector – or, put another way, the view that unless you have been really or consistently bad, as it presently stands you can fall through the system, weakening its integrity, and setting yourself up for true pain down the track. 

It is anticipated that the mandatory education option – or, more formally, an “education direction” - would be used where the ATO considers the breach(es) by the trustee arose from ignorance or a lack of proper understanding of the trustee’s obligations and/or superannuation law in general.  It will be a written direction and will require the trustee to successfully complete a specified education course within a specified period of time. 

The trustee will need to provide evidence of having completed the course.  As for the education service providers, the course they provide will need to be approved and they will not be permitted to charge any fee to a trustee who is taking the course at the direction of the ATO.  A trustee will bear the burden of ancillary costs related to the taking of the course (e.g., lost work time), can object to a direction or request that it be varied; but, this aside, failure to meet the terms of an education direction will be an offence.


Being the trustee of a SMSF is not for the fainthearted or the dissonant prone.  The trustee is legally responsible for the conduct of the fund in an environment of diverse and numerous legal obligations.  It is both foolish and dangerous to think that any compliance action against the trustee will or should be carried out in accordance with the trustee’s timetable or within the trustee’s comfort zone.  I hope you have found peace.

This article was published in the May 2013 edition of SMSF Magazine.