Non-lodgement of SMSF returns a red flag for ATO, say industry associations

Tony Negline, financial services leader at CA ANZ, said there are three broad reasons why people are running late or don’t lodge.

“Firstly, they set the fund up, get money into it and never do any compliance work, so it’s a bad look from day one,” he said.

“There is an indication that there is an increasing number of these, and it is bad for the sector because we don’t want to be known as a sector that doesn’t comply.

“It runs the risk of the ATO saying ‘this is not a good situation’ and everyone’s life will become more difficult.”

Mr Negline said the second major reason for failing to lodge is because when fund holders make a mistake setting up their fund, they tend to try and stay unnoticed.

“They run away and hide, like a kid who breaks the window and runs away and hides,” he said.

“The third major reason is that people may wind up their fund, take all their money, but not shut the fund down properly, which requires the ATO being notified.

“All that being said, it doesn’t mean that our members aren’t working their fingers to the bone doing their normal tax lodgement work and then also helping clients cope with the current trading conditions.”

Mr Negline said accountants have played a major role in the SMSF sector since the 1980s, and despite the raft of new rules and regulations set to hit the sector in the next few months, he doesn’t think the situation will change.

“Most people, when they set up a fund, it tends to be done by an accounting practice — they create the fund at the tax office level,” he said.

“To be frank, it’s never been easy; the changes in the super area have been a constant, and some years are worse than others.”

Tony Greco, general manager of technical policy for the Institute of Public Accountants, said that in previous years, super fund returns (2022) were mostly negative for most, and this can also make SMSF more attractive when people are looking for alternative options.

“The non-lodgement of SMSF returns is a red flag to the ATO as it could mean a number of unsavoury things may have happened,” he said

“Firstly, members setting up an SMSF to gain illegal access to their funds to circumvent existing rules; secondly, someone has fraudulently (scammers) set up an SMSF on behalf of trustees without the members’ knowledge; and finally the investments they have made have turned sour (FTX crypto assets — case in point), and there is little money left in the fund and little incentive to lodge to face the consequences.

“Some of these events can attract hefty penalties, so you can understand trustees putting their head in the sand and do nothing until the ATO takes direct action.”

Mr Greco said unlicensed accountants are only allowed to perform execution for SMSFs and cannot recommend setting one up as this is currently considered financial advice.

“Many accountants also do administration of SMSF, and this adds to their existing workloads,” he said.

“Audits of SMSF has also been strained as there are fewer specialist in this field and the work is getting more complex, so this is another reason why things are taking longer, particularly for new funds when trustees have neglected documentation tasks.

“SMSF numbers are on the increase, and it’s the younger cohort that are attracted to the DIY route for managing their superannuation nest egg.

“The advent of ETFs, managed funds and crypto have incentivised a new group of investors who are prepared to vote with their money.”