Trustees of self managed superannuation funds (SMSFs) need to be aware of how the ATO gathers information about them in order for the ATO to assess whether their SMSF poses a tax compliance risk, and how the ATO may respond if it perceives a risk.
The ATO has recently announced that it will take a new risk-based approach to how it treats auditor contravention reports (ACRs). This approach will be based on the overall risk posed by the SMSF. Using new risk models, the ATO will analyse multiple indicators of possible non-compliance, including regulatory and income tax matters, information from the SMSF annual return, ACRs and other data such as trustee and member records. The ATO will then use this information to determine appropriate actions to take regarding each SMSF.
The ATO has also reminded SMSF trustees that from 1 July 2014 it will have more flexibility in how it deals with SMSFs that breach the super law – including new powers to issue penalties. The ATO says that SMSF trustees should therefore rectify any contraventions of the law as soon as possible, or have plans in place by 1 July 2014 to do so.
While the new SMSF trustee penalties start from 1 July 2014, the ATO has noted that contraventions of the law (such as loans to members or relatives) that exist on 1 July 2014 will come under the new penalty regime
The ATO has announced that it will apply a new risk-based approach to its treatment of auditor contravention reports (ACRs) for self managed superannuation funds (SMSFs) based on the overall risk posed by each SMSF.
In edition 30 of the ATO's SMSF News (released on 29 May 2014), the Commissioner says he will consider multiple indicators and use new risk models to determine the appropriate action to take in relation to each SMSF. The key indicators include non-compliance (with regulatory and income tax matters), information from the SMSF annual return, ACRs and other data including trustee and member records.
Under this new approach, the ATO will respond to all ACRs received with an audit, phone call or letter. This will take place shortly after lodgment in order to provide more certainty to trustees, tax agents and SMSF auditors. The ATO says this approach also recognises the increased SMSF auditor professionalism stemming from the new ASIC registration regime, with many cases therefore warranting less intrusive action.
The ATO's new risk categories for SMSFs include the following:
- High-risk SMSFs - These will be selected for comprehensive audits that will scrutinise all regulatory and income tax risks displayed by the fund, with a particular focus on repeat offenders. This program will also involve an increasing number of ATO field visits to engage high-risk SMSFs and their tax agents. New ATO administrative penalties for breaches by SMSF trustees (up to $10,200 per breach) will be applied when the Commissioner confirms that a breach is eligible for such a penalty.
- Medium-risk SMSFs - The ATO will take less intrusive action in relation to SMSFs that are assessed as medium risk. That ATO says that because trustees are responsible for their fund's activities, the ATO will engage directly with trustees to discuss reported contraventions, remind trustees of their obligations and encourage compliance in future. This action will usually occur within six to eight weeks of lodgment of the ACR. In the majority of cases, if the trustees can assure the Commissioner that they understand their obligations, the issue(s) reported in the ACR will be closed and no penalties will be applied. Through this treatment, the ATO aims to intervene before more serious comprehensive audits are required.
- Lower-risk SMSFs - These will be issued with tailored correspondence reminding the trustees of their obligations and encouraging compliance in future. The issue(s) reported in the ACR will be closed with the issuing of this letter, which will usually occur within six to eight weeks of lodgment of the ACR.
The ATO notes that while the new SMSF trustee penalties will become available from 1 July 2014, contraventions (such as loans to members or relatives) that already exist on 1 July 2014 will come under the new penalty regime.
Source: ATO SMSF News – edition 30, released on 29 May 2014, www.ato.gov.au/Super/Self-managed-super-funds/In-detail/News/SMSF-News/SMSF-News---edition-30/?page=10.