The ATO has a targeted approach to SMSF compliance and Trustees must be aware of their role and responsibilities. Some of the key areas the ATO is focused on include:
• Whether the fund has been established as a genuine super fund
• Lodgement obligations
• The use of prohibited loans
• Related party transactions
• Funds with a history of non-compliance
• Incorrect reporting of exempt current pension income and tax losses
So let’s break these down…
Am I establishing a genuine super fund?
The ATO will review each new SMSF registration in order to understand the reason for the fund being created – they do this to ensure the right people are entering the market. For example, is the fund being created because the members want a more active role in managing their super fund, or so that the members can access their superannuation early? All areas of registration will be reviewed by the ATO to determine if the fund has been created for the right reasons.
What are the lodgement obligations?
SMSFs are required to prepare financial statements and annual returns each financial year. These documents are then audited and the annual return is lodged with the ATO. Funds that don’t lodge returns for several years will find their regulated or complying status withheld by the ATO. The impact of this is issues with rolling benefits from an industry or retail superannuation fund to the SMSF or if an employer checks the current status of the fund.
Is my fund using prohibited loans?
The ATO is concerned that funds are entering into borrowings without fully understanding their requirements and without proper resources for ongoing support of the arrangement.
Does my fund have related party transactions?
Whilst they only represent a small proportion of total assets, related party assets have had a large number of contraventions reported. If your fund has a related party transaction, you may suffer closer scrutiny by the ATO.
Does my fund have a history of non-compliance?
In cases where a fund has a history of compliance issues, the ATO will closely monitor all future transactions to confirm that the trustees are complying with their roles and responsibilities. More importantly, where an issue arises within a fund with a history of non-compliance, the action taken by the ATO will be tougher than on a fund with no history of non-compliance.
Am I correctly reporting exempt pension income and tax losses?
With growing numbers of SMSFs entering into Account Based Pensions or Transition To Retirement Income Streams, the ATO is focussing on the methods being used to determine the allocation of income relating to the pension/income stream interest versus the income allocated to an accumulation of interest without a fund. As this allocation affects the assessable income of the fund, there is particular concern from that ATO that income is being reported as exempt when this may not be the case.
It should be noted, where an issue arises within a SMSF, the trustees’ honesty and timeliness with reporting the issue will affect the ATO’s approach. Should you have any questions in regards to your roles and responsibilities for your SMSF, please do not hesitate to contact our superannuation division to find out more information.