Your SMSF client is contacted by the ATO one afternoon. The ATO wants to discuss a recent breach of superannuation law by their fund. How should your client react?
First – Don’t panic
It’s important your clients are aware that under its new approach to compliance the ATO will call a trustee when a relatively minor breach has occurred. The ATO will try to work through the solution with the trustee to prevent the fund from requiring a full audit.
Second – Play nice
The ATO has stated it is looking to work with funds rather than point the finger with a “got you” call. If your client is willing to rectify the breach and co-operate with the ATO, they’re more likely to have a positive outcome. The ATO has said that if they are satisfied, they may close the relevant auditor contravention case with no penalties applied.
Third – Ensure your client knows their stuff
Whilst the ATO is looking to achieve a positive outcome, a trustee who cannot show they understand their obligations will ring alarm bells. A trustee should be up-to-date with their fund's activities and details or at the very least have records which they can look back on and check. If your client answers with a response such as, 'I don’t know, my wife/husband takes care of all that super stuff' or 'I have no idea, I just do what the rest of my family tells me to', the call is unlikely to end well.
Comments like those will likely see your client disqualified as a trustee for not having the requisite knowledge. They will then be required to undertake a trustee education course and prove to the ATO they have enough knowledge to be allowed to run their own super fund with their own money in it.
Finally – Establish a game plan with your client
This is not just a friendly notice from the regulator; the ATO is expecting your client to be working on a way to rectify the problems identified. Any trustee who receives a phone call should be ready to outline what they are doing to fix the issues as soon as possible. Simply being "too busy to fix it right now" is not good enough and will likely see your client’s matter escalated.
The client should know in advance that their fund auditor put a contravention report in and you should have worked out the solutions with them. Your client needs to understand these solutions and should have your advice on hand ready to refer to when the ATO rings.
If your clients follow the tips above, they’ll be on their way to achieving a productive and positive outcome for their fund.
Peter Townsend, principal, Townsends Business & Corporate Lawyers