The Australian Taxation Office (ATO) is targeting what it says is a worrying increase in badly behaved self-managed superannuation trustees. It plans to apply harsher penalties.
Speaking at the SMSF Association National Conference, Dana Fleming ATO assistant commissioner of the SMSF segment, revealed a sharp increase in the number of regulatory contraventions in 2019.
Over 10,300 SMSFs had 27,719 contraventions compared with 8,215 SMSFs and 16,909 contraventions in the previous year. Fleming warned that enforcement actions can include disqualifying the trustee.
Fleming says: “If the behaviour is such that we believe there is a future risk to the retirement savings of that member we will take our strongest actions to remove them from the system. That is by disqualifying the trustee or issuing a notice of non-compliance.”
The most common contraventions were loans to members, at 21.1 per cent, in-house assets at 18.5 per cent and separation of assets at 12.7 per cent.
Fifty per cent of these contraventions were self-rectified before the auditor’s contravention report was handed back to the ATO.
Another problem is that nearly 100,000 SMSFs out of a total 600,000 are not lodging their returns with the ATO.
The ATO has counted over 24,000 ‘never lodges’ after a campaign these are estimated to be at worth at least $1 billion as calculated from the exit of their Australian Prudential Regulation Authority super fund.
Fleming says: “The never lodging population is of great concern to us as it is highly correlated with illegal early release.”
There are 56,000 lapsed lodges with $19.5 billion of retirement savings is at risk.
Fleming says some reasons for this are that the trustee has received a contravention and do not know what to do with it or a member has died, and the other member is not aware of the fund.
Fleming says: “I am really concerned that we have no visibility over whether those retirement savings are there or not.”
Of the 500,000 SMSFs that are lodging on time and are getting an audit annually, 2 per cent have had an audit contravention.
The ATO sends a series of colour coded letters to remind trustees to lodge their returns as a way to address the non-lodging population.
Fleming says: “We have written to remind them of their obligations, and we are about to issue an orange letter and that will basically a show pause letter. That is our firmest action and we will consider closing the account.”
Fleming noted that the current compliance risk focus for the ATO is illegal early release and promoters and non-lodgement of returns.
Of those that did have contraventions, 75 per cent have had no consequences for non-compliance with the law.
The ATO has recalibrated its approach to enforcement and Fleming expects a maximum of 10 per cent going forward and argues that unless there has got to be a consequence for breaking the law.
Fleming says: “I think there is room for improvement in both our enforcement approach and how we are using our powers and also what support we are giving to trustees to make sure they are swimming between the flags rather than outside of them.”
Nearly all trustees with a contravention will get an education direction. If they have triggered an administration penalty, the ATO will remit.
Fleming says: “If trustees are better educated, they are less likely to re-offend.”
The internal practice notes have been in place since April 2019 and will be made available to the public in March 2020.