The use of Self managed super funds (SMSF’s) in Australia has been growing in popularity over the past several years due to the many potential tax benefits associated with an SMSF. In early 2014, there were approximately 528,701 SMSF’s in existence, and according to the latest statistics released by the Australian Taxation Office (ATO), there are 1,200 new investors each year using their SMSFs to purchase residential property.
While the ATO has embraced the boom in SMSF’s in recent years, and has fostered the growth of the sector by relatively lean penalties and providing updated and continued education, the days of leniency toward non-compliant SMSF’s appears to be over.
The ATO has announced a renewed focus on SMSF compliance as a result of the introduction of the Tax and Superannuation Laws Amendment (2014 Measures No.1) Act 2014 in early 2014, which has given the ATO new powers pertaining to compliance monitoring and the imposition of penalties.
Whilst continuing to monitor SMSF’s tax payments, compliance with the retirement objectives of members, auditor contravention reports and issues raised by SMSF annual returns, the ATO will also focus on dividend washing and stripping, overseas seminars, and home loan unit trusts. Illegal early release of super benefits will also continue to be monitored by the ATO.
The new penalty regime allows the ATO to impose penalties consistent with the type of breach that has occurred, however the ATO’s discretionary powers have been reduced. SMSF’s will be ‘risk assessed’ by the ATO in respect of both regulatory/income-tax perspectives, and depending on the overall level of risk (low, medium or high) an action plan will be devised.
This can include a full audit of the fund’s tax/regulatory affairs (with penalties of up to $10,200 per trustee if a regulatory breach has occurred) (high risk SMSF) or a detailed rundown of the contravention issues and provision of an opportunity for the fund to self-address the contravention with no penalty (medium risk SMSF). A low risk SMSF can expect to receive a tailored letter of advice detailing trustee obligations and providing information in respect of remaining compliant in the future. Of course, if medium/low risk SMSF’s fail to rectify any issues raised by the ATO, they face a full audit of their tax/regulatory affairs and the risk of the penalties if a breach is identified.
In 2014, 585 SMSF trustees were disqualified for breaches of the Superannuation Industry (Supervision) Act 1993, compared to less than 100 disqualifications in 2010, only 5 years ago.
Due to the complexities often involved in setting up a SMSF, it is imperative that a financial planner or accountant who is well versed in SMSF’s is engaged to assist in setting up your SMSF and to ensure that your SMSF is compliant. Furthermore, prior to purchasing, selling or improving residential/commercial property in your SMSF it would be prudent to obtain experienced and professional advice to ensure that the fund remains compliant with the relevant legislation.
If you have any queries regarding your SMSF, or in respect of the purchase/sale of commercial or residential property in an SMSF, then please telephone one of our experienced and professional Gold Coast Lawyers today on 07 5563 8970.