Speaking at a recent conference, ATO assistant commissioner, SMSF regulatory branch, Justin Micale said one of the big concerns for the ATO at the moment is the rate of non-lodgment for SMSF annual returns.
Mr Micale said there are currently around 34,000 funds that have never lodged their first returns and a further 60,000 lapsed lodgers who have more than one outstanding return.
“The lodgment rate for the 2020 year is tracking at about 91 per cent,” said Mr Micale.
While lapsed lodgment may be due to trustees experiencing difficulties, it’s often an indicator of broader issues, he stated.
“We’ve found that when an SMSF has an unrectified regulatory contravention, it can be a pre-curser for failing to meet their lodgment obligations in subsequent reporting periods,” he told delegates at the Tax Institute’s Superannuation Intensive.
“There’s been an alarming increase in the number of funds failing to lodge their first annual return and become what we call never lodgers. This is not a good start to their journey as an SMSF trustee, particularly as we issue letters specifically to these trustees to remind them of their first lodgment due date.”
The number of newly established SMSFs failing to lodge their first return has grown significantly from 3 per cent in 2013 to over 26 per cent in 2020.
“For the 2021 year, we’ve only just passed the lodgment due date [for new SMSFs], but the percentage of outstanding returns for new registrants has increased again,” he cautioned.
“This is particularly concerning if we can see that there has been a rollover into these SMSFs as this is a strong indicator that illegal early release may have occurred.”
Mr Micale said the lodgment of SMSF returns remains a significant priority for the ATO.
“We have a comprehensive communication program in place to remind trustees of their lodgment requirements, including targeted mail-outs for those new to the system and those that have failed to meet a due date,” he said.
“While this approach does deliver positive results for the majority of trustees, there remains a persistent group who continue to ignore our reminders so we’re now targeting them with a compliance campaign called three strikes and you’re out.”
Mr Micale said the ATO is also urging SMSF professionals to bring any outstanding SMSF return lodgments for themselves or their clients up to date.
This problem also partly corresponds with the ASIC rules taking accountants out of SMSF pensions and
Fund set up
If an accountant is involved – it will be monitored properly
At present pensions are being initiated by Trustees as they will pay for a finacial plan
Trustees get ino a habit of not complying correctly and it is difficult to bring them back as they complain about costs. Also up until recently the tax potential penalties were so large people opted to stay out of the tax system once they got behind – out of fear and inconsistancy of enforcement
Lastly – When financil planners get hold of a Fund they try and get the cheapest and quickest tax and audit deal
as there is only so much that Trustees want to spend on admin and overheads
That leads to a lot of trustees receiving poor tacx advice etc and having all the accounting and tax done on teh cheap.
I think the Government ruined a good enough system when they intervened last time to change the rules
and i hope that they get the balance right this time around and cahange some of their mistakes
PS It seemed to me that the current system was put in place due to tjhe bank financial planning lobbyists
taking over the process last time
So keepimg that sector happy should not be neceassary this time around – given what happened
with he Royal Commission
Based on the comments, I wonder if newly established SMSFs will be forced to use a registered SMSF administrator for the first few years after establishment.
I used to work for a SMSF administrator that provided a daily service. We would control the bank account of the fund. Payment requests would be verified for compliance reasons to ensure a breach did not occur.
As an industry, if we keep moving down the path of never lodgers and early release, the government may be forced to mandate a SMSF administrator for newly established funds for a certain number of years or for all funds.
Those who are breaking the rules are selfish and stupid. They risk major changes which will affect everyone.
Make an interview mandatory. (Strange we are having more issues now after FOFA where only licensed advisors would do the set-up? My guess is the problem funds are now being self-set-up?)
Make a penalty automatic for failure to lodge first return (unless an deferral is granted).
A copy of the trustee declaration is to be sent to the ATO for future prosecution.
Anyone wishing to put Crypto in their fund will have to also send the ATO a copy of their crypto strategy. It is strange those with derivatives must have an additional strategy, but not crypto.
As for the ATO, they need to make phone calls. Ring new trustees in January and remind them. It cannot be that hard to follow-up. What we see nowadays is “reaction” not “pro-action” from the ATO. Either they don’t have sufficient resources, or their own strategies need an overhaul!
I am a registered tax agent. Recently a new SMSF came to me to bring their outstanding tax returns up to date. (A “Never Lodger”). After I discovered that the client was illegally using the money that was rolled over from an Industry Fund and was in clear breach of the SIS Act, the client cancelled my services and has chosen not to lodge anything. The breach was very blatant and obvious. The client was using the money to build a house which was not owned by his super fund. The client also transferred Super Fund money into a bank account which was in his private name and not in the name of the Super Fund. Many people who setup SMSF’s are unaware of the rules and the consequences if there are serious breaches.
There is another reason from a tax agent prospective as well.for non lodgement of first tax returns and thats the new audit rule.while we do chase them and remind them,the fact that we have to use external auditors increases the time by 2 weeks,everything is due,no time to do it,no reprieve of blanket extensions,i wonder how many are on agent waste time to produce extension lists..
The ATO’s own systems may be part of the problem – we lodged a SMSF not necessary early December 2021, and have chased and chased the ATO to process it – in March we received a reply advising they wouldn’t accept the not necessary as a bank account has not been set-up. We’ve replied and 4 weeks later, we’re still waiting for a response…….
Just get permission from your auditor to sign off and lodge a NIL tax return. The ATO won’t accept RNRs for Super Funds.
They will if you can prove that the first rollover or contribution is received in the bank account post 30 June. Getting them to respond is the problem. We have had eventual success with a couple new set ups. Still working on another. It’s ridiculous.
I did a RNN request on the ATO Portal for a new SMSF in October 2021, as the fund did not have rollovers until August 2021. I supplied them with a copy of the rollover statement, and the bank account, and I still do not have a reply.
Why spend weeks dicking around with non-responding peanuts at the ATO, when you can lodge a NIL Tax Return in five minutes and get it off the list.
Never tried myself – can you lodge a NIL return without having an audit done?
Nope – a SMSF has to have an audit done to lodge a return – even if it’s a nil. The other option is spend months chasing the ATO requesting they process a RNN. Either option isn’t great!
Set out the facts to your auditor and get their approval to lodge. It’s a five minute audit compared to waiting months for the ATO to get their heads around it.
@ DavidL we have lodged first year RNN’s for a few where there was no activity until the second year, though the ATO does take months to process which is a pain. But why prepare and lodge a nil return and get it audited, when the RNN is so much easier and cheaper for the client? Seems like unnecessary costs.
I must be missing the point on this specific comment – I thought that a SMSF couldn’t apply for an ABN (and thereby a TFN) without there being capital in the fund? Why would there ever be a RNN submitted when a fund must have assets for the ABN/TFN to be applied for? Even if the contribution was the ‘Nominal $10’ that the ATO proposed, doesn’t that still mean that the Fund has capital and therefore a return and audit is required for that year?
Maybe the ATO should call some of the never lodgers on the telephone. Crazy idea. They might want to better target their audit activity as well. We had an new SMSF denied complying status pending review as the ATO feared it was an early release scheme. The taxpayer literally had a Total Superannuation Balance of Nil hahahah
Good point, H.
I’ve had dozens of calls about overdue company/personal Tax Returns; requesting lodgement, demanding lodgement, wanting an update on status.
Never had a call about an overdue SMSF Tax Return.
Lot of this will be Crypto traders also who have set up, gone and breached numerous sections, unable to provide credible information to the accountant and put it in the too hard basket. This and young people who set up to trade shares and pay no respect to the process of lodgment and fees involved.