SMSFs with outstanding compliance issues should consider making a voluntary disclosure while the ATO still has a more flexible approach in place and before they implement tougher admin penalties, says a law firm.
Recently, the ATO’s acting assistant commissioner for superannuation, Steve Keating, outlined the ATO’s current approach to dealing with SMSFs facing compliance issues and making voluntary disclosures, said Shaun Backhaus from DBA Lawyers.
“The ATO has recognised that many Australians are experiencing financial hardship as a result of the COVID-19 pandemic, and therefore it is not pursuing its usual audit program,” Mr Backhaus said.
“For the time being, the ATO is primarily engaging with and resolving issues for those SMSF trustees who have initiated contact with them, mainly through the ATO’s early engagement and voluntary disclosure program.”
Mr Backhaus said, typically, a voluntary disclosure will involve providing all relevant facts, supporting documentation and a rectification proposal or proposed enforceable undertaking to the ATO.
At the moment, the ATO is seeking to resolve issues while minimising the financial sanctions and penalties that might otherwise be applied during these difficult times, he noted.
“This more flexible approach has been brought about as a result of the difficult environment we all face with the COVID-19 pandemic,” he said.
With the ATO planning to undertake a tougher approach on administrative penalties once it issues its law administration practice statement (PS LA), SMSFs who have compliance issues may want to use the ATO’s voluntary disclosure service sooner rather than later,” Mr Backhaus stressed.
“The ATO has recently reviewed the application of its administrative penalties under s 166 of the Superannuation Industry (Supervision) Act 1993 (Cth) which highlighted that its staff have been too lenient in remitting these penalties.
“The ATO wants to rebalance its handling of imposing these penalties with a firmer approach.
“There is no date on when this flexible ATO approach will end, but we suspect that this will depend on when the PS LA issues and how many contraventions arise as a result of COVID-19.”
Mr Backhaus said it’s likely that, in the current environment, there are a considerable number of SMSFs with contraventions as families and businesses focus on paying for immediate necessities, rather than complying with the super rules.
“These financial pressures do not, however, provide any excuse or defence for contravening the super rules, and advisers in particular should be proactive in alerting clients that illegal early access to super benefits will still be treated seriously,” he warned.
“Sanctions that may apply to illegal early access could, for instance, include hefty tax and administrative penalties, non-compliance, disqualified status and a range of other penalties.”
He also pointed out that the ATO’s more flexible approach is only applicable to SMSF trustees that make a voluntary disclosure before an ATO review or audit is commenced.
“A different treatment applies if any contraventions arise from any ATO review or audit activity,” he said.
“Most contraventions are reported to the ATO by SMSF auditors engaged and paid by each SMSF via the auditor contravention reporting system. Thus, if there is any contravention, it is likely to be notified to the ATO in due course, and early engagement and voluntary disclosure is generally the best way forward.”
01 September 2020