As SMSF auditors, we review thousands of funds every year, many will be compliant. However, there are always some that don’t meet what the law requires. This doesn’t mean trustees are deliberately flouting the law, nor does it mean the accountant or adviser aren’t doing their job correctly.
Simply put, mistakes can happen. The SMSF auditing system isn’t in place to punish trustees or advisers and accountants – it’s here to help everyone make the most of their fund. However, where there are innocent breaches of compliance, the ATO is keen to work with trustees to rectify the problem.
Generally the auditor and ATO will want to see an action plan regarding the corrective action to take place including when the breach will be fixed by. If there is an issue, it is better to sort it out as soon as possible. An auditor reporting a breach that has been fixed is a far better outcome than ignoring it and hoping it will go away.
In some cases it may be wise for trustees to complete an education course to prove the trustees are keen to comply with the superannuation laws. There are many good online courses to help trustees with their compliance obligations.
It is always wise to voluntarily disclose the contravention prior to the fund being audited. Self-reporting will give a good first impression and will be looked upon favourably by the ATO.
The corrective action could be selling assets, correctly reporting income or even just supplying relevant paperwork. The ATO will decide whether or not to accept this, so it’s a good idea to ensure trustees have outlined everything they will do to ensure SMSF compliance in the future.
If you do have an issue and the ATO wants to review your fund don’t ignore them or put it in the too hard basket. It is important you respond to the ATO as quickly as possible. Also, don’t deflect the responsibility by telling the ATO you know nothing about the issue because someone else such as your spouse, parent or adviser looks after the fund. It will probably end up with an outcome less favourable.
Where funds constantly repeats breaches of compliance then more than likely administrative penalties will apply. Penalties for rule breaches must be paid out of trustees own pockets, not the fund and these can range from $900 and up to $10,800 depending on the breach.
The ATO manages a points system for SMSF compliance, where each point (penalty unit) incurs a $180 fine. This can build up quickly – poorly kept minutes can generate 10 penalty units, while failure under SISA subsection 84 (reporting in-house assets) is met with a 60 penalty unit fee.
One person’s mistake can mean everyone pays.
Each individual trustee can be liable for these penalties – one person’s mistake can mean everyone pays.
Failure to comply with ATO directives or contravention of the law can mean very serious penalties.
Trustees can be disqualified from an SMSF, the ATO may force the fund to wind up, and there could even be civil and criminal charges laid against trustees.
Again – we know a lot of the time, SMSF compliance failure can be an honest mistake. But regardless of how it happens, compliance penalties can be very serious. If you’re not sure about the compliance of the SMSFs you handle, get in touch with the team at Audit your Superfund and we can help.