The findings of the Small Super Funds Income Tax Gap report on the difference between total tax collected for small super funds, and the amount that would have been collected if all associated taxpayers were fully compliant with the law. The small super fund segment consists of 550,000 SMSFs and 2,200 small APRA funds.
For the 2014-15 income year, the ATO estimates a net income tax gap for small super funds to be $39.9 million. The tax payable from small super funds in that year was $1.2 billion, and the gap represents about 3.2 per cent of theoretical liability.
However, the ATO notes the precision of the tax gap estimate is limited by its “relatively small” sample side, giving wide confidence intervals. Further, the figures are likely to be updated in the coming years, as returns data is finalised.
The ATO reached its tax gap figure for small funds through a random enquiry program, which also showed that misunderstandings about the application of ECPI, incorrect reporting of franking credits and over-claimed deductions were key aspects of non-compliance for SMSFs.
To address the gap, the ATO will continue its focus on monitoring the tax paid on contributions to small funds and monitor taxes paid on investment returns within SMSFs. The ATO will also monitor transfer of wealth from a non-superannuation environment into an SMSF, to detect profit shifting strategies.
Although the ATO is labelling the net tax gap for small super funds “relatively small,” in proportionate terms it is more than double what is owed by large super funds for the 2015-16 financial year.
For the 2015-16 financial year, the net large super fund income tax gap is estimated to be $127 million, translating to 1.5 per cent of theoretical tax liability. The total tax payable by large super funds for the 2015-16 income year was $8.2 billion.
SMSF Adviser notes there are limitations to drawing conclusive comparisons between the two segments, including that the ATO does not have published tax gap data for both small and large superannuation funds from the same income year.
Typically, large funds trip up on their compliance obligations where they’ve had “differences in law interpretation” compared to the ATO. This includes on the Foreign Income Tax Offset, CGT discounts and over-claiming of franking credits.
Still, the ATO said large super funds have relatively lower risk than other large corporates when it comes to tax compliance.
Ramping up its focus on third-party data, which is often produced by outsourced companies for large super funds, is central to the ATO’s plans for targeting non-compliance with tax obligations for large super funds.
“As outsourcing is a significant feature of the industry, the quality and integrity of third-party data is essential for accurate reporting by the funds. This can lead to third-party reporting errors and therefore unpaid tax,” the ATO said.
“We recognise the quality and integrity of third-party data is key to accurate reporting by funds, and are broadening our existing focus on fund governance to ensure appropriate checks and controls are in place to provide added levels of assurance around third-party data,” the ATO said.
The SG gap
The net superannuation gap, which is the difference between the value of SG gaps required to be paid by law minus what is actually paid — is about $2.85 billion. The ATO originally published these findings last year.
This made way for a crackdown on employers skipping their SG payments, particularly those engaging in phoenix activity.
It also gave rise to the 12-month amnesty period for employers to correct their SG non-compliance. This measure was introduced in the May federal budget, but is yet to be passed into law.
katarina.taurian@momentummedia.com.au
So – $72 per fund. The ATO is charging every fund $259, the ATO is winning anyway!
Why does it take the ATO so long to work out they have not been doing their own job particularly well either? Their lack of clarity on many of these topics has left the industry to discuss, analyze and implement generally accepted treatments and procedures. Suddenly the ATO realise they have not been performing their job and providing the authority to the industry that should have existed. Their complex interpretations show that the whole system is starting to implode and the losers are set to be Superannuants yet again. After getting slugged excessive fees in quite a few instances, now the ATO are set to hammer them from the other side. It used to be the ATO would provide guidance, and give time for the industry (and software providers) to gear up for the changes. Now we often have retrospective and reactionary legislation or complex law changes with a 2 – 3 month “lead time”. Can we please have some commonsense? The regulators need to draft the legislation as close to 12 months ahead of implementation date as possible (other than things like tax rate changes, fines and administrative items). This gives industry and software providers sufficient time to get ready. As SMSF professionals we can undertake training well in advance so we can hit the ground running. If this happens there should be very few pervasive issues.
This data is based on 2014/2015 Year , there has been so much change to ECPI with deemed segregation and 1.6 Limits imposed the 39 Million is totally make believe and another unfounded attack on SMSFs
The ATO study will mean a beefed up compliance force taking on contributions tax and pension exemptions. Getting documentation right is absolutely essential if an ATO audit is undertaken. One missed pension document can mean the world to the ATO.
A great example as to why we need to have an accreditation to prepare SMSF accounts. They are more complex and most other entities