Illegal early release from SMSFs on ATO’s high-risk watch list

In a speech given earlier this year, the ATO’s Assistant Commissioner for Superannuation, Dana Fleming, focused on the risk areas that the ATO had identified as being of most concern — and as being most in need of action.

Each year the ATO analyses its data to identify the key risk areas that then form part of its compliance program. These key risk areas in the SMSF space include:

  • illegal early release and promoters
  • non-lodgment
  • top 100 tax planning arrangements
  • top 100 auditors
  • high-risk auditors.

On the first risk area, Fleming said one of the ATO’s central compliance strategies involves targeting individuals (and promoters) who are registering an SMSF with the sole intent of using the fund as a vehicle to illegally access super benefits.

“Illegal early access undermines Australia’s retirement system,” she said. “It places an unfair burden on the community because individuals who illegally access their employer super guarantee and voluntary contributions are more likely to become reliant on the age pension when they retire.”

Over the 2018-19 financial year, the ATO disqualified 257 trustees from 169 funds. Illegal early release (IER) and loans made to member was the reason for disqualification in more than 70% of these cases.

Over the tail end of calendar 2018 there were 12,211 new registrants in the SMSF sector, Fleming said. “We reviewed approximately 10% of these, with our primary focus being to check for IER. As a result of these reviews, 123 funds had their details withheld from Super Fund Lookup, meaning they were unable to receive payments or rollovers.”

She also reported that 329 newly registered SMSFs had their registration cancelled. These actions resulted from the ATO’s addressing more than a third of the cases picked up by its risk models, through which Fleming stated that it was able to protect about $45 million of retirement savings.

What the ATO found
Fleming said that IER most commonly occurs where individuals:

  • want to access money due to:
    • financial stress (for example, unemployment, marital breakdown, debt) or
    • a desire to spend on a present-day benefit (such as a holiday or deposit on a home) or
  • know little or nothing about setting up or running an SMSF and are targeted by unscrupulous promoters.

“As a co-regulator of the sector, we work very closely with ASIC to co-ordinate our activities in relation to such operators.” ASIC is of course responsible for licensing financial advice providers, while the ATO regulates SMSFs. 

“We regularly meet with our colleagues at ASIC and share information; for example, intelligence about organisations or people who encourage the establishment of an SMSF as the vehicle to invest in their products inappropriately.”

Fleming said the ATO will refer matters to ASIC:

  • if it is concerned that the organisation or person may not be licensed to provide financial advice, or
  • if there is potential misconduct in relation to providing financial advice.

The ATO also works jointly with ASIC on some cases, with ASIC investigating the provider of the advice or investment vehicle and the ATO looking at any regulatory breaches by the SMSF.  

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