Tim Miller, technical and education manager for Smarter SMSF, said the ATO will not just focus on annual returns, but the impact the evaluations have on things such as total superannuation balance and issues associated with it.
“That could be general transfer balance cap issues around non-concessional contributions, carry forward concessional network test exemptions, disregarded small fund assets – there are so many elements to it,” Miller said.
“It is quite broad, and it covers funds from accumulation through to retirement phase that are impacted by total super balance which are ultimately impacted by valuations.”
Aaron Dunn, CEO of Smarter SMSF, said the communication the ATO sent out and put on its website suggests there is the possibility of exposure to additional tax and the potential for administrative penalties.
“And quite clearly, it could put auditors in the line of fire in respect to their obligations in undertaking audits on an ongoing basis,” he said.
Miller said as a consequence of the ATO communication there has been a lot of follow-on information coming from SMSF auditors around the importance of valuations, and it’s important that all players within the sector are “on the same page”.
Dunn added this is the first time the ATO has sent letters out to SMSF trustees on such a scale since issues arose concerning LRBAs in 2018–19. At that time, the regulator also took the action of writing to a cohort of SMSFs that had an asset concentration above 90 per cent.
“That was off the back of the financial regulators’ review into the use of leverage in superannuation and identifying the fact that there were pockets of concern that some funds hadn’t met the requirements of SIS regulation 409,” he said.
“This latest action, to me, is saying the ATO is really using this data in far better terms than they have previously. “
He added that looking at part B of the compliance audit, it’s necessary to think about questions that may need to be asked about how risk could be better managed, and the obligations of trustees.
“This sits nice and neatly within the 8.0 2b requirement, and the ATO is now saying ‘get this done and get this done properly and document this because if you don’t, then we will look to apply the mechanisms that we have in the law to address this’,” he said.
“This means that trustees can’t just use the same valuation as last year because they don’t want to pay the cost of redoing a valuation.”
He said the issue will become more prevalent as time goes on, particularly regarding unlisted assets, the management of risk for auditors, and the Division 296 tax.
Miller added that the data the ATO is collecting could also have implications around NALI/E and it could instigate investigations into funds over these expenses, or at the very least, issue a “please explain” letter to trustees.
