By Graeme Colley
The ATO is on the warpath with SMSF auditors where two or more auditors decide to audit each other’s SMSF clients. Their review has identified several cases where there are potential independence issues and concerns over the quality of the audit undertaken. In some cases, the fund auditor was also the tax agent for the fund and in other cases fund audits were made by the trustee/member of the fund being audited. During this financial year the ATO have announced they will be concentrating on auditors who are undertaking high volume audits for low cost and looking at the quality of the work undertaken.
The ATO’s compliance focus, in addition to auditor independence, will be on those fund breaches which have been notified in the Audit Contravention Report, funds failing to lodge tax returns and tax planning arrangements. The tax planning arrangements include non-arm’s length LRBAs, dividend stripping and payment of personal services income to the fund. Many of the arrangements the ATO is interested in relate to schemes entered into by small to medium business owners who try to transfer profits to the SMSF.
In addition to the ATO’s compliance program for the 2016/17 financial year, a number of emerging issues have also been tagged. These include SMSFs that are involved in property development and other business ventures involving related parties. The main concern is the manner in which the SMSF undertakes the property development or business venture. This may give rise to the breach of the legislation and potentially taxing the income earned by the fund as non-arm’s length income. Another issue is the use of life interests in real property, and refunds of non-concessional contributions made intentionally in excess of the contribution caps.
By acting recklessly and coming onto the ATO’s radar, trustees are exposing themselves to penalties and potential disqualification which means they will be unable to act as a trustee of any superannuation fund in future. Therefore, the control and freedom which comes as part of operating an SMSF will be denied – something all trustees should avoid.
The ATO also reported that there has been an increase in rectification orders as well as education directions issued to trustees. For those clients who have received an education direction, the online course provided by SuperConcepts meets the ATO requirements and can be used to show an approved course has been undertaken by the client.
