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Self Managed Super Fund (SMSF) Article
ATO Supervision of SMSFs
By Tony Negline.
This article may be out of date.
21st March 2007
The two speeches by the tax office at the 2007 SMSF Professionals' Association annual conference sheds some further light on what the ATO thinks is important in relation to Self Manager Super Funds.
They were given by Michael D’Ascenzo, the Tax Commissioner, and Raelene Vivian, Deputy Tax Commissioner who has specific responsibility for superannuation matters.
We learnt that to date there has been about 20% more small super funds being created this financial year compared to the long-term average.
In an effort to reduce compliance costs for small funds the ATO has combined the funds income tax and regulatory return, a member contribution statement and levy payment. A major irritant for anyone is that these items are lodged at different times throughout the year. This change will be made for the 2007/08 financial year onwards.
Over the coming financial year the ATO will look at the affairs of about 6,500 super funds. It will pay particularly close attention to super funds that do not submit regulatory paper work on time, “we expect every fund that is in existence to lodge their fund income tax and regulatory return, member contribution statement and pay the supervisory levy. There will now be a greater focus, with additional resources, to action non-lodgment cases and also improve the timeliness of lodgment.”
Auditing of SMSFs by external auditors is about to become more onerous. When an auditor finds a breach of the super regulatory rules they are required to tell the ATO. Under current law the auditor must use their professional judgment and only has to report a breach if the auditor believes it’s ‘material’ – that is, an infringement of an important super law especially where it has a considerable impact on the fund’s financial standing. To circumvent the potential for different interpretations of this requirement the law is being changed so that the ATO can be much more prescriptive on how auditors are meant to go about their jobs. The ATO has said for many years that it is concerned about the quality of work performed by SMSF auditors and this latest change reflects the fact that the ATO has waited long enough for auditors to fix these problems themselves.
That said, in the two and a half years since auditors had to tell the ATO about super law breaches, more than 16,000 have been reported. “Of these about half were reported as unrectified (50.6% of total contraventions)”. Key contraventions are:
- loans made to a member or a relative (18%)
- assets not in the name of the fund (16%)
- breach of in-house asset rules (14%)
- documents requested by auditor were not provided (11%)
- borrowings by the SMSF for purpose not allowed by the legislation (9%)
- breach of sole purpose test (8%)
The ATO has said that it will now look very closely at 1,600 of the funds that have been reported by their auditors but haven’t fixed the problem. If a super fund auditor finds a problem and they decide that the ATO must be told about it, the auditor must also tell the tax office if the problem is fixed or in the process of being fixed to the satisfaction of the auditor. Given the close attention the ATO will be paying to some of these funds it is clearly better to fix any legal breaches as quickly as possible.
The ATO explained that under the super laws they cannot issue advice to super funds that will bind the tax office to that advice even if it changes its mind about how the law operates (this type of advice, called Private Binding Rulings, is available under tax law). To compensate the ATO will issue some rulings specific to SMSFs in most of the six areas that external auditors have found errors, such as providing assistance to members and their relatives and acquiring assets from members.
Finally the ATO mentioned a new law which is due to come into effect on 1st July. This law will require that all new trustees of SMSFs sign a declaration (on a form designed by the ATO) stating that they understand their duties as a trustee. This new form must be signed within 21 days of becoming a trustee. This rule will apply to all SMSFs if a new trustee is appointed. The fund must then retain a copy of this declaration for at least 10 years. Fines can be imposed for not signing the new declaration. The ATO says that this designed to give “a better assurance that they are aware of their obligations and responsibilities”.
Correction – in DIY Super two weeks ago we said that certain types of asset test exempt pensions could not be purchased after 30 June. The government seems to have decided that it will allow these products to be purchased before 20 September this year which is the date that the age pension assets test becomes more generous.
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