ATO TURNS UP THE HEAT ON SMSF’S: NON-LODGEMENT AND COMPLIANCE RISKS IN FOCUS
The tax office is targeting the lucrative self-managed superannuation sector and its trustees.
In a recent AFR article (link below), the ATO’s focus on SMSF non-compliance was highlighted. The key issue described is the non-lodgment of income tax returns, which provides the ATO with key data and information relating to the fund which, in addition to its data matching technology and powers, allows the ATO to identify, review and audit key risks relating to the SMSF sector.
Whilst the ability to control one owns superannuation as an individual trustee or director of a corporate trustee is attractive, that control is heavily tempered by the strict regulation in the Superannuation Industry (Supervision) Act 1993 (Cth).
Whilst many are familiar with the illegality of early access, the superannuation laws also target the purpose of invested funds to ensure non-members do not benefit. The laws also provide restrictions on how a SMSF can use borrowed funds to acquire assets, requiring, for example, a carefully documented limited recourse borrowing arrangement.
Whilst the article highlights a segment of SMSFs which were established for improper purposes, often by promoters marketing illegitimate schemes, the use of a self-managed fund is common within wealthy private groups given the tax concessions available within the superannuation environment. This attraction persists notwithstanding the anticipated introduction of the much-maligned Division 296 tax on balances over 3 million dollars.
What the article does not address is the catastrophic consequences which can arise when the ATO issues non-compliance notices, causing a fund’s assessable income to be taxed at the highest marginal tax rate, which is currently 45%, rather than the concessional rate, or when the ATO disqualifies an individual from acting as trustee or a director of a corporate trustee, which, unless the decision is successfully reviewed, can cause the viability of the fund to diminish.
Smailes Krawitz practices in superannuation law, including the establishment and refresh of SMSF trust deeds, engagements with the ATO and all related taxation and succession planning advice our clients need.
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