Emma Rosenzweig, deputy commissioner for the ATO, has said SAR lodgment is a basic expectation for those choosing to run their own super fund and there are heavy implications for those who fail to comply.
With the date for lodgment only days away, Rosenzweig told delegates at the SMSF Association national conference that there are approximately 85,000 funds that are still yet to lodge their annual return for 2023 and around 54,000 SMSF annual returns that are still outstanding for the 2022 income year.
“While only 3 to 4 per cent of SMSFs have a contravention reported, that’s only based on those who have actually lodged and we expect a significantly higher proportion of non-lodgers have contravened the regulatory rules,” Rosenzweig said.
“For example, we know that non-lodgment is a serious red flag for illegal early release. This is especially the case for newly established funds who haven’t lodged their first return. There are still 4,500 funds established in the 2023 income year who’ve not lodged their first return, which is now well overdue.”
Rosenzweig said non-lodgment also restricts the ATO from correctly administering the rules around concessional and non-concessional contribution caps, Division 293 tax, and assessing transfer balance caps.
“These are important rules that have been put in place to ensure equity in the superannuation system, and avoidance of them by failing to lodge returns and report accurate information to the ATO is serious.”
“As the regulator of SMSFs, the ATO has a responsibility to respond accordingly. For those who miss the annual return lodgment due date and don’t contact us, their fund will no longer display as complying on super fund look up. Instead, their regulation details will be removed. Removal from the register means that rollovers can’t occur to that fund and employers may stop contributing.”
If an employer can’t confirm the compliance status of a fund, they are also putting their own compliance with super guarantee (SG) obligations at risk and are likely to refuse to pay contributions to that SMSF.
“We do understand that there are times when people may need a bit more time to meet their obligations, and so if they’re having trouble, we expect trustees or the agents to contact us as soon as possible and seek an extension in those scenarios,” Rosenzweig said.
Additionally, the deputy commissioner said another issue the ATO has observed is that SMSF trustees are ignoring release authorities issued by the regulator to release the excess contribution amounts from their fund.
“This means that super is being taxed concessionally when it shouldn’t be, and there are consequences for this for trustees who fail to release the nominated amount. A non-compliance penalty with a maximum of 20 penalty units or just over $6,500 may be incurred,” Rosenzweig said.
“Sadly, it’s a similar story with commutation authorities, where we’re observing similar instances of non-response by SMSF trustees, where the member has exceeded the transfer balance cap and we’ve sent them an excess transfer balance determination.”
Trustees need to ensure they’re following these legal requirements and respond within the required time frame with the required actions as set out in ATO notices.
“Not doing so might affect the SMSF entitlement to exempt current pension income and trustees might also be liable for penalties or subject to compliance action.”
Dear Emma, have you checked the number of registered agents recently? Have you then refined this for agents who lodge SMSF returns. My guess is there are a lot less now. You can thank FOFA for this. It didn’t just purge financial advisors, it reviled firms from anything SMSF or Super. If you have less agents doing this work, but you have 32,000 more new funds this year, then guess what, you will have a lot more non-lodgements. Its just maths, nothing personal!
And I agree with wind-ups. I read the ATO’s guidance. It indicated the SuperStream could be processed “after” the fund was wound up! How is that possible? To wind the fund up the member balances must be NIL. Their rollouts have to have happened. The auditor will have to have confirmed the receiving fund has the money. Otherwise you won’t get an audit report issued. And without the audit report, you cannot have a tax return lodged in any case. QC103836.
The ATO need to develop a flagging system for wind-ups. The Agent Flags the fund. The ATO then STOP issuing or depositing to the SMSF account. Much the same as when you notify the bank that your loved-one has passed, the Bank “freezes” all accounts as a safeguard.
When will the ATO do something about making it easier to lodge NIL returns or RNN (Returns Not Necessary)/being wound up for smaller SMSF’s that are 1) in Full Pension mode and well within the various super caps & 2).
The fact is a lot of the boomer generation that are now well into their late 70’s or early to mid 80’s never had a lot of super to being with. They are in full pension mode and have often withdrawn their balance in etirety to help pay off a mortgage or fund aged care. They would have had no tax to pay, yet the client and us as Tax Agents are bombarded with ATO lodge now demands and late lodgement penalty notices and we have to try & convice a client that they should spend $2000+ on Audit & Accounting Fees to do financials & tax returns for a fund that no longer exists, and have no tax to pay and the ATO will be forced to remit the penalties when they realise they were barking up the wrong tree.
Can your good selves and the professional bodies please raise & press this issue with relevant Ministers and all of these so called “Working Groups” our professional bodies are meant to be on to make our lives a little more easier.
So, those members who have followed the “important rules” as to earnings, contributions and the like, are now being targeted by the Albanese government if their member balances are over $3M? That must be the “reward” for being so compliant to all he rules. Super is the most regulated part of the system, limits on how much can go in, how much can got out, where it can be invested, when you can get “access” to the benefits etc. But apparently when Government wants “access” to the funds – hey no problem, just send the money. It is not a defence to say that the “only” affects 80,000 members! Simple theft is what it is