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.