Recently the ATO’s Acting Assistant Commissioner for Superannuation, Steve Keating, outlined the ATO’s current approach to dealing with SMSFs facing compliance issues and making voluntary disclosures. The ATO has recognised that many Australians are experiencing financial hardship as a result of the COVID-19 pandemic and therefore it is not pursuing its usual audit program. For the time being, the ATO is primarily engaging with and resolving issues for those SMSF trustees who have initiated contact with them, mainly through the ATO’s early engagement and voluntary disclosure program.
Voluntary disclosure program
The ATO’s SMSF early engagement and voluntary disclosure service allows SMSF trustees to proactively disclose contraventions to the ATO. By disclosing contraventions upfront, the trustees should be in a much better position regarding any sanctions that might otherwise be applied. Our article here outlines the possible compliance actions the ATO can impose on SMSF trustees.
Typically, a voluntary disclosure will involve providing all relevant facts, supporting documentation and a rectification proposal or proposed enforceable undertaking to the ATO. This allows the SMSF trustees to set the rectification and propose the steps they will take to fix the compliance issues.
Current ATO approach
The ATO is currently seeking to resolve issues while minimising the financial sanctions and penalties that might otherwise be applied during these difficult times. This more flexible approach has been brought about as a result of the difficult environment we all face with the COVID-19 pandemic.
Furthermore, the ATO has recently reviewed the application of its administrative penalties under s 166 of the Superannuation Industry (Supervision) Act 1993 (Cth) which highlighted that its staff have been too lenient in remitting these penalties. The ATO wishes to rebalance its handling of imposing these penalties with a firmer approach. Broadly, the ATO sees the ability to have an SMSF as a privilege and SMSF trustees and members should act in accordance with the super rules. The experience to date has shown that it’s approach has not had the desired result of encouraging better behaviour. The ATO plans to issue a Practice Statement Law Administration (‘PS LA’) document to guide its officers on a ‘rebalanced’ policy regarding the application of administrative penalties for SMSF trustees in the near future.
Thus, SMSFs with outstanding compliance issues should seriously consider making a voluntary disclosure while the ATO has this more flexible approach available. There is no date on when this flexible ATO approach will end but we suspect that this will depend on when the PS LA document issues and how many contraventions arise as a result of COVID-19.
We anticipate that there will be a considerable number of SMSFs with contraventions occurring in the current environment as people, families and businesses seek to focus on survival, which includes paying for immediate necessities, rather than complying with super rules. These financial pressures do not however provide any excuse or defence for contravening the super rules and advisers in particular should be proactive in alerting clients that illegal early access to super benefits will still be treated seriously. Sanctions that may apply to illegal early access could, for instance, include hefty tax and administrative penalties, non-compliance, disqualified status and a range of other penalties. There have been many legal cases and Tribunal decisions that broadly confirm that we all must comply with the super rules and that the SMSF is not the ‘banker of last resort’.
Moreover, the ATO’s more flexible approach is only applicable to SMSF trustees that make a voluntary disclosure before an ATO review or audit is commenced. A different treatment applies if any contraventions arise from any ATO review or audit activity.
Most contraventions are reported to the ATO by SMSF auditors engaged and paid by each SMSF via the auditor contravention reporting system. Thus, if there is any contravention, it is likely to be notified to the ATO in due course and early engagement and voluntary disclosure is generally the best way forward.
DBA Lawyers can help
DBA Lawyers has assisted many SMSF trustees and advisers to determine the most appropriate strategy moving forward including any rectification proposals, confirming the facts and making the most appropriate voluntary disclosure to the ATO. We are also happy to manage the ‘front line’ communications with the ATO on these difficult matters.
One of the advantages of engaging a law firm that focuses primarily on SMSFs in these types of matters is that we can assist on preparing any relevant documentation and, if necessary and as instructed, pursue any objection or review that may be needed should the SMSF trustees be dissatisfied with the ATO’s determination or assessment. As a law firm, our advice is also subject to legal professional privilege which other advisers do not have.
Please contact one of our lawyers if you would like to discuss how we may be able to assist.
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.
Note: DBA Lawyers hold SMSF CPD training throughout the year. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
28 August 2020