Tax threat looms for SMSFs with overdue returns

Tax threat looms for SMSFs with overdue returns

An SMSF trustee who did not have his SMSF tax returns up to date has been hit with an unexpected tax bill from the State Revenue Office (SRO) in Victoria.

DBA Lawyers director Daniel Butler became aware of an SMSF trustee who was assessed with additional land tax by the SRO in Victoria on the basis his SMSF tax returns were not up to date.

According to the SRO, beneficiaries of excluded trusts are not required to pay the surcharge land tax rate that typically results in a significantly higher land tax liability on trusts such as family discretionary trusts. A trust may qualify as an excluded trust if it is a complying superannuation trust. In this event the usual land tax rate and usual land tax free threshold applies in Victoria.

However, the details of this member’s fund were removed from public lookup due to his SMSF’s lodgement failure and therefore the SRO could not confirm the fund had complying status.

The member must now lodge with the SRO a current notice of compliance (CNOC) by the SMSF, Mr Butler told SMSF Adviser, which will most likely involve getting his SMSF tax returns up to date and then asking the ATO to issue a CNOC.

“If the Victorian SRO is onto this, other people have to be aware that the other SROs are probably onto it as well,” Mr Butler said. He added that while there are significant differences between the land tax legislation for each state and territory, a number of jurisdictions treated trusts less favourably than individual land owners and provided a concession for this less favourable treatment for complying superannuation funds.

“That is, the SROs now have the ability to check in with the ATO and, unless your super fund is up to date or showing complying status, you’ll probably get hit up for extra land tax on land held in an SMSF,” Mr Butler said.

“Super funds have now another factor to contend with. The ATO has been on to them to get their tax returns done in time; well here’s yet another incentive to get your tax return done in time.”

This incident is likely a consequence of the increased data and information sharing between the ATO and other government agencies, Mr Butler suggested.

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