ATO outlines main drivers of rise in contraventions

Speaking at the recent SMSF Association National Conference, ATO deputy commissioner, superannuation and employer obligations, Emma Rosenzweig said that while this might seem like a worrying trend, it may also be positive in that issues are being identified and reported.

One of the factors that may be contributing to the increase, said Ms Rosenzweig, is the work the ATO has been doing in providing clearer guidance and information for auditors on what they need to report and when they need to report.

“We also know that there is heightened financial stress across the economy, and that is no doubt one of the drivers leading to people making contraventions, particularly loans to members and illegal early release,” she explained.

Ms Rosenzweig also noted there had been a big increase in new SMSF trustees entering the SMSF sector, including some individuals who don’t fully understand their obligations.

While there has been an increase in ACRs, there has been a positive trend with the number of rectified contraventions, she said.

“A rectified contravention is where they’ve reported the contravention but they’ve already rectified it, which is ideal,” she explained.

“Rectified contraventions represented 36 per cent of ACRs reported in the 2020 financial year, this went up to 42 per cent in the 2021 income year and is up to 47 per cent so far in the current financial year. We’d obviously like that trend to continue.”

The two biggest contraventions reported to the ATO were loans to members and illegal early release, she said.

“We’ve also seen an increase in relation to the sole purpose test and market valuations of assets,” she cautioned.

Ms Rosenzweig said it was important that SMSF trustees are aware that “inappropriately accessing the funds and assets of their SMSFs for personal use, such as a loan to a member or accessing super to support a business constitutes contraventions, which may attract additional tax penalties and the disqualification of trustees”.

Some of the main drivers of regulatory contraventions, she said, are financial stress, poor record keeping, and a lack of understanding of the rules.

The ATO, she said, is also closely monitoring SMSFs involved in inappropriate tax-planning arrangements through the ATO’s high-net-worth individuals program.

“We have a particular focus and regularly monitor SMSFs with high asset balances to ensure that they have acquired their assets with within the regulatory framework and are appropriately accessing superannuation tax concessions,” she stated.

“The most common risk we encounter in this area relates to non-arm’s length transactions arising from related-party dealings. This often involves the undervaluation of assets acquired from a related party.”