As the regulator of the SMSF sector, the ATO’s message to participants comes back regularly to the fact that it continually balances providing assistance and support to this very important retirement savings sector with its stringent regulatory expectations.
This operational balance was recently referred to by the ATO’s Assistant Commissioner Dana Fleming in her address to the SMSF Association’s annual conference in February. Her speech (read the transcript here) highlighted the fact that most SMSFs (86% of the 600,000 funds) lodge their annual return on time, there is still a significant amount that don’t (about 85,000 funds).
“So far this year we’ve identified 64,000 ‘lapsed lodgers’. These SMSFs have an average of 3.4 years of overdue SARs. According to the last return they lodged, they hold approximately $27 billion in fund assets that are potentially at risk,” she said. “About 4,000 of the SMSFs in this population had an auditor contravention report (ACR) lodged with the last SAR they lodged.”
To rein in the $27 billion of retirement savings that are at risk, Fleming said the ATO is gearing up to take some serious actions. The lapsed lodgers she refers to have already been sent a targeted mail out to the 570 SMSF auditors and 2,728 tax agents with an SMSF with one or more overdue SARs.
Fleming said that about 30% are now back on track, but apart from these, in relation to the remaining 70%: “Where they are not actively working with us to bring their lodgments up to date, we will refer them for audit where the range of possible actions includes:
- penalty for failing to lodge SAR on time
- default assessments for each year of non-lodgment to estimate tax payable, and penalties of up to 75% of any shortfall
- disqualifying the trustees
- a notice of non-compliance, with significant negative tax consequences for the SMSF.”
Fleming also told the SMSF Association conference that she was concerned about close links between superannuation early release scams and funds that had never filed annual returns.
She said the ATO’s research with retail and industry super fund regulators at the Australian Prudential Regulation Authority indicated more than $1 billion had gone into SMSFs that had never filed returns with the ATO. “I’m really concerned they have taken the money out and spent it. I’ve got great concern where that money has gone.”
Turning to the long-term never-lodger SMSF population with two or more overdue returns, recent ATO data analysis has identified some sobering facts:
- the population of SMSFs that have registered between 2013 and 2018 and have never lodged is just under 30,000 (this includes the 6,500 first-year never lodger group)
- of these 30,000, over 50% are funds that appear to have received a rollover from an APRA fund
- there’s been a steady increase in the number of these funds over the past five years
- the average amount of the rollovers into these funds steadily increased from $78,000 in 2013 to $140,000 in 2017
- the average age of trustees in funds that have never lodged is 36.
“Our analysis shows a variety of reasons for never lodging,” she said. “Some trustees have never operated, some admitted to IER and some have brought their lodgments up to date. We’ll be doing a mail out within the next few months to the entire never-lodged population.”
Fleming said that the ATO’s preference is always to assist SMSF trustees to stay in the system by helping them rectify and return their SMSF to a point where it is again complying with the SISA. “However, when rectification is not possible or appropriate, we will take action to remove the SMSF from the system, or disqualify the trustees or both.”