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Tips from the ATO's eyes and ears on SMSF compliance

As an SMSF auditor, I see many trustees making unnecessary and often significant mistakes with their compliance upkeep. Here are some tips on how you can stay on the right side of superannuation law.

Building an SMSF is like building a car. You need to follow a series of steps (and in the right order), you can’t leave anything out, and you need to know exactly what’s legal and what’s not.

In a lot of cases, this is why you should leave SMSFs to the professionals. They’d know, for example, that an SMSF must now be established before registering for an ABN, which means:

it must already have both trustees and members


the trust deed has to be signed, dated and properly executed

the fund must be holding assets.

This creates a bit of a catch-22 situation, because the fund: 

must have a bank account to accept contributions and rollovers

can’t establish a bank account without an ABN

can’t get an ABN without assets. 

But they’d also know how to get around it—by literally attaching $10 to the fund’s trust deed. The fund now ‘holds an asset’, and so they can apply for an ABN, open the bank account and deposit the $10 into the fund’s bank account.

(Relatively) new rules for new SMSFs

From 1 January 2015, all SMSFs need to lodge a SMSF Annual Return (SAR) in the year they were established.

In the past a new SMSF didn’t need to lodge an SAR until it held assets. But the rules have changed, and a fund can no longer avoid it by lodging a Return Not Necessary (RNN) form. 

And that’s why timing is critical. Let’s say a fund is established late in the financial year, with the expectation of receiving contributions and/or rollovers. Even if it doesn’t receive anything until the next financial year, it will still need to lodge an SAR in that first year.

It would also apply with a fund whose property settlement (or other asset) is held up because a rollover has been delayed. 

The Australian Taxation Office (ATO) position is clear on this point: a new SMSF should not invest money in any assets until the fund receives member rollover/s.

And trustees should wait to hear from the ATO before investing. If everything is okay, the SMSF will appear on SuperFundLookup (SFLU) within seven days. Any problems with the registration can affect the fund’s ability to receive contributions, rollovers and Superannuation Guarantee Contribution (SGC) monies from employers.

Tougher rules for all SMSFs

All new funds are now risk assessed to ensure only genuine funds enter the SMSF population. And the ATO is reviewing all new fund applications to ensure they aren’t being established to illegally access benefits. 

It’s also cracking down on how fund assets are held. They want to see them correctly held by the Trustee on behalf of the SMSF, particularly the fund’s bank account. 

A problem we often see during an audit is where a fund holds assets in the name of the trustee only. Depending on the circumstances, this may lead to a breach of R4.09A (“Separation of assets”).

Here’s how fund assets should be held.

For a corporate trustee, all investments should be held in the correct corporate trustee name with correct designation account name.

Right: ABC Pty Ltd <ABC Super Fund A/C>

Wrong: ABC Pty Ltd <Super Fund Account>

For individual trustees, all investments should be held in the correct name of at least one individual trustee.

Right: John White <ABC Super Fund A/C>

Wrong: John White <Super Fund A/C>

The Australian Securities and Investments Commission (ASIC) is now advising the ATO of all corporate trustees being deregistered. These trustees will receive a letter in 2015 from the ATO stating the fund must either be wound up or restructured to ensure the SMSF remains compliant.

Funds have six months to reply to the ATO, and if the trustee doesn’t take any action the fund will be removed from SFLU. If there’s no money in the fund, or the trustee has illegally accessed funds, trustees are urged to contact the ATO as soon as possible.

Don’t put your SMSF at risk

The ATO has already begun sending letters to trustees of new SMSFs who haven’t lodged their SAR. The trustees will then need to provide evidence of assets within 28 days of the letter date. If they don’t, the SMSF will be cancelled.

These new rules are now in force, and may apply to your funds. So don’t risk what you’ve worked so hard for. 

Shelley Banton, director SuperAuditors, a firm which works with accountants, financial planners and SMSF administrators Australia-wide.


Tips from the ATO's eyes and ears on SMSF compliance
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