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By Hadyn Ori­ti

12 July, 2018

In an effort to make our nation’s reg­u­la­to­ry envi­ron­ment eas­i­er for both busi­ness­es and house­holds, the Turn­bull Gov­ern­ment has announced a wish to reduce the com­pli­ance bur­den for self-man­aged super­an­nu­a­tion funds (SMS­Fs) that have a his­to­ry of good record keep­ing and com­pli­ance.

Under pro­posed new laws, well-behaved, com­pli­ant SMS­Fs will only be audit­ed once every three years instead of every finan­cial year.

The gov­ern­ment will now under­take indus­try con­sul­ta­tion to help pro­vide more detail and define exact­ly what con­sti­tutes ‘good com­pli­ance’.  It is pro­posed the changes will take affect 1 July 2019.

Like any­one, we wel­come any ini­tia­tive that reduces red-tape; how­ev­er, we believe the reduc­tion in over­sight should not encour­age trustees or mem­bers of self-man­aged funds to think that their com­pli­ance oblig­a­tions have eased.

The ATO seeks to be fair and rea­son­able when deal­ing with non-com­pli­ance with super­an­nu­a­tion funds but in real­i­ty, mak­ing errors in your SMSF com­pli­ance can result in huge penal­ties.

If the ATO find your SMSF to be non-com­pli­ant it can impose penal­ties rang­ing in sever­i­ty from enforced SMSF edu­ca­tion to civ­il and crim­i­nal penal­ties for cer­tain breach­es to the Sole Pur­pose Test, lend­ing to mem­bers, bor­row­ing rules, in house asset rules and oth­ers.

The ATO may also issue a Notice of ‘Non-Com­pli­ance’.  This is a very sig­nif­i­cant step and has the con­se­quence that the fund is then deemed to be non-com­ply­ing.  The change in sta­tus to non-com­ply­ing has a sig­nif­i­cant finan­cial impact.

For every year that the fund remains non-com­ply­ing its assess­able income is taxed at the high­est mar­gin­al tax rate.  In the year that it becomes non-com­ply­ing, it must include in its assess­able income an amount equal to the mar­ket val­ue of the fund’s total assets less any con­tri­bu­tion that the fund has received that are not part of the tax­able income of the fund.  That could be sig­nif­i­cant.

The ATO may give a trustee a freeze notice in order to pre­serve ben­e­fits at risk if the ATO per­ceives that the trustee’s actions will like­ly affect its ben­e­fi­cia­ries to a sig­nif­i­cant extent.

As a pro­fes­sion­al in this area, my advice is not to rely upon the Commissioner’s good­will.

Trustees of SMS­Fs should con­tin­ue to take advice from those experts and advis­ers they trust to ensure that actions they take will not com­pro­mise com­pli­ance.

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