More SMSF prosecutions, more work for advisers

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Increased powers proposed for the Australian Tax Office to prosecute sloppy SMSF trustees will likely make more work for advisers, SPAA’s Graeme Colley says.

“I think it will probably increase the burden, because advisers will now have to be more careful by ensuring the super fund is run as squeaky clean as possible, otherwise the trustee will be penalised,” Colley, SPAA’s director of technical and professional standards, tells Wealth Professional.

“And the likelihood they will get penalised is probably higher with the new legislation than current rules.”

This opinion contrasts with lobby group Superannuation Australia’s view. Superannuation products and services manager Reece Agland said earlier this week the changes will not only help the ATO secure better compliance but reduce the burden on SMSF advisers, who have to “constantly battle” with these types of trustees to get material lodged and provide appropriate documentation.

But both industry bodies agree the changes are necessary to replace the inefficient powers ATO currently holds to prosecute wayward SMSF trustees.

“The current rules are not efficient as some minor breaches can result in a jail term while major breaches can attract a little fine. And the ATO has trouble implementing them because they have to take it through the courts to do anything,” Colley says.

Recently the ATO released figures which showed about one in 60 SMSFs breached rules each year. For the financial year to the end of June 2013, around 7,700 funds were reported to the ATO by their auditors for about 18,000 breaches. There are around 500,000 SMSFs in Australia.

This is a “very, very small” number as most SMSF trustees comply with the rules, says Colley. But he expects to see more prosecutions when the changes come in, likely to be July 2016, because the powers will make ATO more efficient.

“Financial penalties will be imposed by the Commissioner when it’s reasonable to do so, when in the past the ATO would have had to go through the courts to do so. That takes a long time so ATO only takes the most serious cases to court.

“Hopefully that will prompt trustees and their advisers to become more professional in the way they deal with self-managed superannuation funds.”

Currently the most common type of infringement is funds giving financial assistance to members or relatives, which represents about one in five breaches. About the same number of funds breach in-house asset investment rules.

Colley says there is no particular group of people which breach the rules, and it is debateable whether the breaches are deliberate or not.

“One case involved a drug-addicted son who was allowed to take money out of an SMSF account. There was another case where somebody took money out to support their business, and another to pay the mortgage. They’re all different cases, but you’d think these days’ people know you can’t take your money out to pay off your mortgage or support your business."

The proposed changes will give the ATO the power to:

•    issue a fine of up to 60 penalty units (currently $10,200)
•    compel trustees to undertake training and education
•    compel trustees to sign or re-sign the DIY Fund Trustee Declaration.


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