If you are the accountant or tax agent for your client’s SMSF, how do your clients feel if you’re not up to date with lodgment of the fund’s annual returns? After all, they pay you to get things lodged with the ATO by the due date. The ATO says there are over 138,000 outstanding annual returns for SMSFs which is just over 20%, or 1 in 5, of all the SMSFs on their books. How many can you lay claim to?
Also, there are around 26,000 new SMSFs that have not lodged their first return. Some of these may have been established but never went ahead. But the ATO suspects there are still a lot of funds, not lodging, which are set up to gain illegal access to super from an industry or retail fund.
SMSFs that have returns outstanding for previous tax years or are recently established are required to lodge by 31 October after the end of the previous income year. However, for SMSFs that use a tax agent, lodgment of the return is not required until at least 15 May as long as the ATO has not demanded an earlier lodgment date.
If you think lodging a client’s SMSF annual return late is not a big deal, you may need to think again. Any SMSF that has not lodged its return within two weeks of the required date will result in the status of the fund on SuperFund Lookup being changed to ‘regulation details removed’. This means that from the ATO’s point of view that rollovers from other funds should not be made. But the practical impact of the status change is far worse as financial institutions and investment houses can and often block approval of new fund accounts or stop transactions being made on behalf of the fund.
The ATO finds SMSFs that have late lodged usually have compliance problems that may expose the fund to ATO audit. That is, by lodging returns after the due date, trustees and their advisers may be struggling to solve the non-compliance issue before it is cleared through the fund’s SMSF auditor.
The penalties for not lodging the returns on time can be annoying but any ongoing compliance issues not dealt with properly can result in the ATO imposing a range of penalties. Any trustees or their advisers who experience difficulties need to put in place a course of action before the fund return is lodged. In more complex situations, it may be necessary to contact the ATO’s voluntary disclosure service to see whether things can be sorted out before they go pear-shaped.
The ATO can impose a long list of penalties, ranging from minor breaches to trustee disqualification and taxing the fund as a non-complying superannuation fund. Some of the penalties that can be imposed by the ATO include:
• Educational directions
• Enforceable undertakings
• Rectification directions
• Administrative penalties
• The issuing of non-compliance notices
• The freezing of the fund’s assets
• Trustee disqualifications
• The winding up of the fund
• Civil and criminal penalties.
Therefore, it's important for accountants with outstanding SMSF annual returns to take some initiative and get their clients' returns lodged as soon as possible. Otherwise, their clients may face restrictions imposed by their fund's banker or on the fund's investment status. Lodging annual returns on time are better than losing a client!
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