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ATO Compliance Program 2012-2013: ATO to target SMSF trustees and auditors

The ATO has published its Compliance Program 2012-2013 (Compliance Program), its so-called 'hit list' for the current financial year – which includes SMSF trustees and auditors. The ATO has identified 9 broad superannuation compliance risk issues. To enforce them, it will audit funds, trustees, auditors and employers.

While complying SMSFs have nothing to fear from the Compliance Program, all SMSF trustees and auditors should be aware of the ATO's intentions and seek advice if they have any concerns.

Alastair Keith

Each financial year, the ATO publishes a 'compliance program' which sets who and what it will 'put under the microscope'. The program identifies issues that will attract the ATO's attention and what it will do about them.

What is in the current Compliance Program?

The Compliance Program outlines the ATO's concerns and plans for the following broad areas:

  • tax practitioners,
  • individuals,
  • 3 classes of businesses:
    • micro,
    • small-to-medium, and
    • large,
  • superannuation, and
  • abuse of the tax and superannuation systems.

This article focuses on the ATO's approach to the superannuation system.

What superannuation issues is the ATO focusing on and what does it propose to do?


ATO focus/concern

ATO action

Illegal early release of superannuation

Illegal schemes offering early access often target vulnerable groups such as people in financial distress or from culturally and linguistically different backgrounds.

  • Review newly registered trustees and, if there are concerns, contact them to discuss their intention to run the SMSF.
  • Identify promoters of, and participants in, illegal schemes and refer to prosecution.
  • Provide service for APRA funds to verify members requesting rollover to SMSFs and investigate cases raised by APRA funds.

SMSF lodgment of annual returns

A small number of SMSFs lodge returns late or not at all – failure to lodge can be an attempt to avoid detection of non-compliance.

  • Where appropriate, impose tax penalties on SMSFs who fail to lodge, in addition to charging interest on outstanding tax.

Reporting by superannuation funds

ATO administration of superannuation system relies on timely and accurate reporting of information by funds.

  • Conduct 277 accuracy and completeness audits (210 desk reviews, 65 field audits and 2 fund administrator audits).
  • Where appropriate, impose penalties where funds have reported incorrect information.

Tax exemption for exempt current pension income (ECPI)

SMSFs can claim a tax exemption for ECPI for any member receiving a pension from the fund. Some SMSFs get their ECPI claim wrong (e.g. by not ensuring all SMSF assets are re-valued at current market value).

  • Contact 3,000 funds in respect of ECPI claims and, where appropriate, encourage voluntary amendments.

Requirement to invest on commercial, arm's-length basis

The purchase and sale price of fund assets should always reflect a true market value for the asset, and the income from fund assets should always reflect a true market rate of return.

  • Audit and review 100 SMSFs to ensure compliance.

Approved auditors

Approved auditors of SMSFs play a key role in the assurance framework for the SMSF system.

  • Audit and review 150 approved auditors to ensure they are properly fulfilling their role.
  • Disqualify auditors who pose an ongoing risk and apply other sanctions, depending on severity of behaviour.

Payment of superannuation guarantee contributions by employers

Employers play a major role in the integrity of the superannuation system by paying superannuation guarantee contributions on behalf of their employees.

  • Review around 400 high-risk employers, particularly in hospitality, real estate and carpentry.
  • Check superannuation guarantee compliance of around 3,000 employers.
  • Contact around 13,000 employers in response to complaints about unpaid super.

Excess contributions

Some funds, particularly SMSFs, do not act on the compulsory release authorities.

Re-reporting of contributions may be an improper attempt to reduce or eliminate excess contributions tax.

  • Contact funds that fail to release money.
  • Data matching to determine whether caps have been exceeded.
  • Expected issue of 29,000 assessments for excess contributions tax and 30,000 refunds of first breach.
  • Impose penalties were appropriate.
  • Check re-reported contributions to ensure corrections are bona fide.

Payment of income tax by large SMSFs

Breach by large funds of income tax obligations usually arises from a misapplication or misunderstanding of the law rather than by a deliberate scheme to avoid tax.

  • Analyse top 200 SMSFs based on total assets.
  • Based on this analysis, select 25 SMSFs for a comprehensive audit.

Will my SMSF be affected?

Complying SMSF trustees and auditors have nothing to fear from the Compliance Program or any audit; nevertheless, an audit process can be time-consuming for an SMSF's advisors and thus costly for the fund. Non-complying SMSF trustees and auditors may be punished if an audit or investigation reveals any breach of superannuation law.

The Compliance Program notes that if trustees have committed less serious breaches, then the ATO will work with them to rectify and unwind transactions so that the fund can continue to operate legitimately. In more serious cases, the ATO has flagged its intention to take firmer action, including imposing penalties and interest, making funds non-complying (with the loss of concessional tax treatment and imposition of substantial tax liabilities), disqualification of trustees and prosecution.

Where can I read the full Compliance Program?

The Compliance Program is available here.

What should I do if I have concerns about whether my SMSF is compliant?

You should get legal advice as soon as possible, to assess the risks and what action can be taken to rectify breaches of superannuation law.

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Tax and Revenue or General Commercial teams.

More Cleardocs information on related topics

You can read articles on a wide range of SMSF topics, here.

Order SMSF related document packages


Lawyer in Profile

Andrew Wright
Andrew Wright
+61 3 9258 3362

Qualifications: LLB (Hons), BCom, University of Melbourne

Andrew is a Partner in Maddocks Tax and Structuring team. He has significant experience in advising Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.

Andrew regularly provides advice on:

  • structuring of businesses and transactions,
  • mergers and acquisitions,
  • sale of businesses,
  • corporate reorganisations,
  • fixed and discretionary trust deeds, and
  • international tax structuring.

His advice covers both direct and indirect tax considerations.

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