Compliance actions available to the ATO: SMSFs
The ATO has been ramping up compliance activity in response to an increasing number of SMSFs which have been identified as not complying with superannuation obligations. A quick refresher for trustees on how the ATO deals with SMSF non-compliance and the range of compliance action available to the ATO may assist trustees to act proactively to address compliance gaps early and avoid more adverse consequences.
Understandably, as a first step, the ATO encourages taxpayers including trustees of SMSFs to voluntarily comply with their obligations by providing guidance and other updates. However, it recognises that mistakes may happen and when that occurs in the SMSF space, trustees are expected to identify the mistake in a timely manner and initiate an undertaking to rectify any contraventions.
In that scenario, it is the trustee that proposes the undertaking to the ATO in writing which usually includes a commitment to stop the behaviour that led to the contravention, the action and timeframe to rectify the contravention, how and when the trustee will report the contravention has been rectified, and the strategies to prevent the contravention from reoccurring. The ATO will then consider the compliance history of the trustee, the nature of the contravention and other factors to decide whether or not to accept the undertaking.
Where an undertaking is accepted, a trustee can vary or withdraw the undertaking with the ATO’s consent. In instances where the undertaking is breached, the Commissioner has options, including: entering into an informal arrangement; seeking wind-up of the fund; issuing a direction to rectify; disqualifying/suspending or removing the trustee; freezing assets of the fund; and/or seeking a court order. According to the ATO, it will generally not accept an undertaking from repeat offenders, even if they are willing to rectify.
If the ATO discovers a contravention before the trustee does, or if an undertaking is not accepted or breached, the ATO may give the trustee a written direction to rectify a contravention of the super laws. The direction will specifically require the trustee to take a particular action within a timeframe and show proof of compliance. Where a direction to rectify is not followed, there are consequences for both the trustee and the fund itself. The trustee may be disqualified and the fund’s complying status may be removed. Just as trustee-proposed undertakings can be varied in writing, so too can an ATO-issued rectification direction. Trustees may also object to the ATO’s decision to give a rectification direction or refusal to vary a direction.
Trustees that do not seek or follow rectification directions may be subject to administrative penalties depending on the type of contravention. For example, the penalty for failing to notify the ATO of significant adverse events or lending to members and relatives is 60 penalty units, which works out to $18,780 (each penalty unit is $313 for infringements occurring on or after 1 July 2023). Individual trustees are each liable to the penalty and directors of corporate trustees are jointly and severally liable to the penalty. Administrative penalties may also be imposed on SMSF trustees where false and misleading statements are made to the ATO.
In addition to the imposition of administrative penalties, the ATO can also:
- raise income tax assessments where a member has illegally accessed their super early leading to additional income tax, shortfall penalties and interest charges for the member;
- disqualify a trustee from acting as a trustee or director of a corporate trustee;
- apply to the courts to impose civil and criminal penalties;
- issue a notice of non-compliance to the SMSF which will mean the fund loses its concessional tax status; and
- freeze the assets of an SMSF where the preservation of benefits is at risk.
According to the ATO, where a contravention of super laws has occurred, the trustee cannot escape consequences by winding up the SMSF and rolling over any remaining benefits to an APRA regulated fund. Depending on the actions of the trustee and type of contravention, the ATO may continue to issue the SMSF with a notice of non-compliance or apply other actions.
