Around 3500 self-managed super fund trustees have been disqualified over the past 20 years by the Australian Taxation Office, which says it is using increasingly sophisticated data and intelligence to monitor compliance.
The ATO marked the anniversary of 20 years of regulating the self-managed superannuation fund sector by reminding trustees that the best way to protect people’s retirement savings was to address non-compliance.
Among other compliance activities over the period, the ATO has issued around 2400 enforceable undertakings to trustees and made more than 600 SMSFs non-complying.
And it has referred 145 approved SMSF auditors to the Australian Securities and Investments Commission for further action.
ATO assistant commissioner Dana Fleming says: “The importance of good governance of the sector cannot be underestimated. As the sole regulator of SMSFs, we are conscious of the significant responsibility of safeguarding 1.1 million Australians’ retirement savings.”
In its recent communications, the ATO has focused on SMSFs that lodge their returns late, have single assets in the portfolios, make errors in paying death benefits and misuse rental properties.
Since October 1, if an SMSF is more than two weeks overdue on any annual return lodgment date and hasn’t requested a deferral, the ATO will change the fund’s status on Super Fund Lookup to “regulation details removed”.
What this means is that the fund no longer has complying status. This status will remain in place until lodgments are brought up to date.
If a fund’s status is “regulation details removed” it is unable to receive payments or rollovers. Super guarantee payments must be made into another fund.
In August, the ATO said it would contact more than 17,000 SMSF trustees and their auditors, where the SMSF is holding 90 per cent or more of its funds in one asset or a single asset class.
The ATO says it is concerned that these trustees have not given due consideration to diversifying their fund’s investments. It will be asking the trustees to review their investment strategies and document the reasons behind their investment decisions.
On the issue of death benefits, the ATO says a number of questions have recently been raised by the SMSF sector around the interaction between compulsory cashing requirements when a member dies and the requirement to pay a minimum pension amount each year.
And when it comes to rental property, the ATO says about 90 per cent of claims in this area contain errors, including incorrect interest claims for the entire investment loan where it has been refinanced for private purposes, incorrect classification of capital works as repairs and maintenance, and taxpayers not apportioning deductions for holiday homes when they are not genuinely available for rent.
An added complication for SMSFs is the in-house assets rule. In cases where a fund member, trustee or one of their relatives use a rental property that is an asset of the fund, the value of the property may be included in the fund’s in-house assets.
An SMSF’s in-house assets are limited to no more than 5 per cent of the value of its total assets at market value. A breach of the in-house assets test can result in penalties being imposed by the ATO and could require the sale of the rental property.