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Establishing SMSFs for illegal access on ATO radar

By Adrian Flores
07 May 2020 — 2 minute read

The Tax Office has highlighted concerns around illegal early access to super as the number of newly established SMSFs has skyrocketed through the COVID-19 pandemic.

In a recent webinar discussion on COVID-19, the SMSF Association’s head of technical, Peter Hogan, noted that, in times of financial pressures, it is important for trustees to be reminded of superannuation preservation rules that must be adhered to at all times.

He also pointed to the laws specifically prohibiting funds from lending money or providing any financial assistance to a member.

Then he asked ATO director of SMSF client engagement Steve Keating if this continues to be an area of concern for the regulator.

“It very much is so and continues to be one,” Mr Keating said. “We see this risk manifesting in two ways.”

Newly established SMSFs since COVID-19

Mr Keating said the ATO was very concerned about people seeking to establish an SMSF purely for the purposes of trying to early access or illegally early access their super.

“That’s why we monitor all newly established SMSFs and trying to identify any high-risk individuals,” he said.

According to Mr Keating, the ATO observed in its first six months of the 2019–20 financial year a 6 per cent growth in SMSF registrations, saying it is the first time “in a number of years” that it has seen an increase in SMSF registrations.

However, he said that since January 2020, when awareness of COVID-19 really became quite heightened, the ATO has seen a dramatic increase in the number of people wanting to establish SMSFs.

In March, he said registrations were up by 35 per cent against the same period last year.

“As you might imagine, were keeping a close eye on those new funds,” Mr Keating said.

“Were still not up to the heady days where we had 3,000 registrations per month, but we are keeping an eye on the fact that we are seeing a growth in registrations.”

Existing SMSFs since COVID-19

Mr Keating also noted that the risk of taking money out early is something that equally applies to members of existing SMSFs.

He said loans to members or other related parties through illegal early access are the most commonly reported contraventions the ATO has received from auditor contravention reports and/or through its early voluntary disclosure service.

In such challenging times, Mr Keating said it is very important for trustees to remember the trustee declaration that they signed when they established their SMSF.

He said those rules and regulations are still applicable and SMSF trustees need to continue to meet their obligations under the super laws.

“If super trustees find themselves or their members requiring additional financial assistance, there are a number of legal options that are available to them, such as applying for the $20,000 over two financial years by the early release of super, or via existing provisions for the release of super under severe hardship or on compassionate grounds,” Mr Keating said.

“If, however, trustees have already loaned money of the fund to a member or a related party, or theyve allowed a member to illegally access their super, we can help them deal with the situation.”

Mr Keating encouraged all trustees, if theres been a contravention, to utilise the ATO’s SMSF early engagement or voluntary disclosure service.

“We are keen to work with trustees, and if they contact us before we contact them under an audit, then there are substantial financial benefits to the trustees and their SMSFs by utilising that service,” he said.

Establishing SMSFs for illegal access on ATO radar
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Adrian Flores

Adrian Flores

Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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