Ato Common Contraventions And This Years Focus
This was an excellent presentation, providing great insights into a number of areas
including the issues that the ATO are focussing on in the coming year. The following article is the first in a three part series that provides a summary of the key points from the ATO that both SMSF trustees and advisers need to be aware of.
Common Contraventions
Stuart began by making a very important point that the ATOs compliance program attempts to strike a balance between offering empathy and support to people who want to comply and issuing a timely and firm response to those who dont. They will also be contacting about 1,100 auditors of SMSFs directly via various means in the year ahead, which is around 9% of the approved auditor market, to ensure regulatory and professional requirements are being met.
The ATO are approaching this years risk program in a two-tiered manner: firstly identifying the more complex risk cases for treatment via audit, and then addressing the next level of cases through reviews or tailored advice. They have increased their focus in terms of case numbers and the type of risk treatment applied. Of note was the comment that they will definitely be looking at repeat incidents of non-compliant behavior.
Auditor contravention reports (ACRs) are an important part of the ATOs compliance program as they provide critical information about funds, as well as providing details about the levels of non-compliance in the SMSF market. The ATO risk assess each ACR, taking into account such factors as the type and value of the contravention, and whether the contravention is reported as still unrectified.
The top 6 types of contraventions currently seen in ACRs are:
1. loans to members or relatives
2. breaches of in-house asset rules
3. administrative or housekeeping type breaches,
4. assets not listed in the name of the fund
5. operating standards not met
6. breaches of the sole purpose test.
Focus for the coming year
Stuart made it clear in his address that in the coming year the ATO will be focusing on related-party transactions. He also said that Contraventions around loans to members and financial assistance to members and relatives of members comprise a significant part of the ATOs ACR compliance work they are in fact the two most reported contraventions.
He made the point that this is disappointing, given that the law is unambiguous in that you cannot use the resources of a DIY Superannuation fund to lend money or provide direct or indirect financial assistance to a member or relative of a member.
In fact, in a quarter of cases that the ATO examine whether an arrangement is actually a loan, it is determined that early access has occurred. When this is the case, in addition to any action they take against the fund, the ATO will also assess the member who receives the loan personally for these amounts and they may, as a result, incur a tax liability.
The ATO will be scrutinising loan cases this year. They have 300 audits planned together with 1000 reviews, 1200 mail-out, or tailored advice, cases and a follow-up program relating to loan mail-out cases that they conducted in 2008-09. Where they have followed up reported breaches of the in-house asset rules they have generally found that trustees have effectively been using their retirement benefits to support their related businesses and are clearly exceeding the 5% limit. The ATO always evaluates whether they should work with these trustees to get them back on track but where the breaches are significant it can result in serious sanctions, including making the fund non-complying.
In terms of both volume and complexity, illegal early release (IER) is an important risk and although the ATO has conducted educational campaigns, disqualified trustees and worked with ASIC to prosecute promoters of IER schemes their prevalence continues to be a major concern for the ATO, who has in response developed new strategies that specifically target the SMSF registration phase.
by: Graham Parkes
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