SMSFs: Where the ATO is Looking
The tax office - in its role as regulator of self-managed super - stripped 132 SMSFs in 2012-13 of their prized complying status for committing serious breaches of superannuation law. This is the toughest action that the ATO can take against a wayward SMSF. And it typically affects the savings of all the fund's members.
The market value of SMSFs declared non-complying is taxed at the top marginal rate, less any non-concessional (after-tax or undeducted) contributions. This could remove almost half a fund's assets.
And the ATO prevented 180 proposed new funds from entering the system. (As part of its compliance work, the tax office examines whether a fund has been established for "genuine" superannuation purposes. Sometimes funds are setup as means to extract savings from the super system before the members are legally entitled to the money.)
The ATO's Compliance in focus 2013-14 publication - released over the past week - reveals how the regulator will scrutinise the activities of SMSFs over the coming 12 months.
The annual compliance program can serve not only as a warning of where the tax office is looking but as a reminder of areas where your self-managed fund could possible improve.
During 2013-14, the ATO intends to particularly focus its SMSF attention on:
Prohibited loans. (SMSFs are prohibited from making loans to fund members and their relatives or providing other financial assistance to them.)
Funds with a history of non-compliance, including failure to lodge annual returns on time. The ATO is also keeping an extremely close watch on the compliance of new SMSFs.
Incorrect reporting of tax-exempt pension income. (The tax-exempt treatment of pension assets is a valuable tax break that some SMSFs incorrectly claim.)
Tax losses. (The ATO wants to ensure that funds are correctly calculating any claimed losses.)
Related-party transactions. (Generally, an SMSF is barred under the in-house asset rules in superannuation law from leasing or having investments with related parties involving assets that are worth more than 5 per cent of a fund's total market value. Business property is among the few exceptions to the rule.)
Non-arm's length transactions. (Self-managed funds are required to invest on a commercial, arm's length basis, including transactions involving related parties.)
How does your fund measure up in regard to these areas of ATO focus?
By Robin Bowerman
Principal & Head of Retail, Vanguard Investments Australia
18th July 2013