ATO takes aim at serious SMSF non-compliance

Chief among these concerns, Macfarlane said, was the fact of serious non-compliance from SMSF trustees. “Fortunately that’s only in a small number of cases, but we do detect those cases.”

For example, last financial year the ATO found more than an acceptable number of trustees who are “operating out of the system, and what I mean by that is people persistently not lodging SMSF annual returns,” Macfarlane said. “That’s a real concern for us because there is just a lack of transparency going on in the fund.”

One example saw a trustee fined $40,000 in penalties and barred from acting as a trustee for serious contraventions involving some 43 unauthorised withdrawals from the fund for their personal use over a period spanning 2005 to 2012.

The ATO has found that regulatory contraventions reported to it through auditor contravention reports(ACRs) are a key source of compliance issues. For the 2015 income year, it had 22,000 ACRs reported for 8,200 funds. The ATO said that about half were of the contraventions reported had been rectified when reported in the ACR.

“However this year we will be changing our approach,” Macfarlane said. “Instead, where trustees are willing to engage with us, they will be supported to self-correct and rectify compliance issues through the early engagement and voluntary disclosure service and/or from targeted mail outs.”

She said that this shift in emphasis, together with an increased focus on SMSF auditor independence and quality, will free the ATO to focus more intensive compliance activities and enforcement outcomes on:

• trustees who aren’t willing to engage with it
• trustees who are deliberately and/or persistently not complying with their obligations
• trustees deliberately operating outside the system, eg not lodging annual returns and/or undergoing an annual independent audit
• trustees seeking to adopting aggressive income tax positions, eg implementing dividend stripping arrangements (as described in TA 2015/1), personal income diversion arrangements (TA 2016/6) or other contrived arrangements involving related parties.

The last three issues are to be a particular for the ATO over the coming year. Also on its radar are collectibles which, as per its March 2016 statistical report, now account for around $428 million in SMSF investments. Although this is a small proportion of total SMSF assets, the ATO said the new rules on collectible investments in force from July 1, 2016 mean that a compliance review is necessary.

Any questions regarding your SMSF, please do not hesitate to call us on 02 9283 9888.

Banyan Consulting