SMSFs warned on managing changing ATO processes for fund establishment and compliance

“This has been reflective in the number of orders through our Smarter SMSF platform too, but one area of frustration has been the timeframe for a fund to become regulated with the Australian Taxation Office (ATO),” he said.

“Whilst there are a number of important and valid reasons for the ATO to undertake ‘checks and balances’ with each registration, in particular for any illegal early release (IER) activity, it can present a challenge for individuals wanting to transfer super monies from an APRA regulated environment into their newly established SMSF.”

SMSF provider SUPERCentral had also noted that recently the ATO had changed its approach to the “status” of SMSFs as listed on the Super Fund Lookup. 

SMSFs that have been recently established will be examined by the regulator before being listed on the Super Fund Lookup website.

“Before the recent changes, an SMSF could have the straightforward status of either “complying” or “non-complying” but the third, confusingly but correctly, “status to be determined” presented a problem," SUPERCentral said.

“Before the recent changes when an SMSF was established, it could only be a complying superannuation fund, once the first annual return for the SMSF had been lodged and processed by the ATO and a notice of compliance issued. The SMSF would then have the status of “complying” on the Super Fund Lookup and would be treated as being a complying superannuation fund from the time of its establishment. 

“In the period between the establishment of the fund and the issue of the notice of compliance the status of the fund was technically ‘yet to be determined’. Unfortunately, this ‘status to be determined’ tag led to confusion: could the fund accept rollovers and transfers? Could an employer make a contribution to the fund and claim a tax deduction for the contribution?”

In the new process, the ATO will undertake various checks on the SMSF before the SMSF is listed on the website which can take a few days but could be as long as 56 days.

When setting expectations for rollovers, Mr Dunn noted that whilst the initial process to prepare documentation to incorporate a trustee company and establish a new SMSF deed is a relatively painless experience, in particular through the benefits of automation, the time delay typically starts following submission of a fund’s application for a TFN, ABN and to become regulated with the ATO.

“This registration process can now take up to 56 days for the SMSF to be displayed as ‘Registered’ on Super Fund Lookup (SFLU). The initial status will display the fund as ‘Pending’, which means employers and other super funds will not transfer benefits to the fund until the ATO has updated the status on SFLU to ‘Registered’. 

“Only once this status has been issued will the fund be treated as complying and eligible to receive rollovers and employer contributions. Within seven days of the status being updated on SFLU as ‘Registered’, the ATO will issue a notice of compliance to the SMSF and then display the fund’s status as ‘Complying’.”

These checks are also undertaken primarily to determine whether the SMSF is being used as a means to gain illegal early access to super benefits and whether the individuals associated with the SMSF (such as the members, the trustees or the directors of the corporate trustee) have been identified as “tax persons of interest”.

SUPERCentral noted the ATO will not wait until the SMSF has lodged its first annual return before issuing the notice of compliance.

“This does not mean that the ATO is prevented from either revoking the issue of the notice of compliance or from issuing a notice of non-compliance if the circumstances of the SMSF warrant such action,” SUPERCentral explained.

Managing delays in registration application

When meeting possible registration application delays, it is important to remember that the ATO does not automatically accept every registration application that it receives – each registration is risk assessed to ensure there is no illegal activity that may be occurring in respect to the fund, according to Mr Dunn.  

The ATO as regulator will not accept a fund’s registration where they decide that the parties have not completed the set up steps listed in eligibility to register and get an ABN.

The ATO will also not accept the registration if it cannot confirm the identity of all of the SMSFs’ associates (trustees or directors of the corporate trustee) and any of the trustees or directors of the SMSF are not able to run an SMSF within the rules.

“In many cases, the online registration and ABN application tool will be checking answers as they are being entered on the ABR website and will advise as to whether the SMSF cannot be registered (and an ABN cannot be provided) even before the application is submitted,” he noted.

“In other cases where the ATO cannot be sure of the eligibility based on the answers provided alone, the regulator will withhold the registration whilst an investigation takes place. During this time, a fund will be unable to transfer money from another super fund into the SMSF until the investigation is completed.”

For every SMSF applicant, Mr Dunn reminded that the ATO considers all the trustees and other entities that they have controlled.  

This includes considering factors such as history of insolvency, crimes related to dishonesty, previous SMSF history. Furthermore, the ATO also considers personal lodgement and payment history, super balance and income and any information about identities that have been used fraudulently.

“If the ATO has any concerns about an application, they will withhold the registration and make contact to let the trustees and/or tax agent know that they are investigating the application,” Mr Dunn explained.

“The ATO advises that most of the cases are resolved in under two months, but it can take longer where a more extensive investigation is needed or the applicant trustees do not assist us fully.