SMSF trustees, when things go wrong, don't shy away from voluntary disclosure

The ATO is conversant with the fact that sometimes trustees of self-managed super funds (SMSF) make mistakes. In the 2021-22 income year, the ATO imposed total administrative penalties of around $3.4 million on SMSF trustees. These penalties relate to regulatory contraventions such as trustees illegally accessing super benefits, loans or financial assistance given to members. The ATO are now actively encouraging trustees to engage its early engagement and voluntary disclosure service (Service) when a contravention occurs, as early disclosures are taken into account when determining the level of penalties that might apply.

Notably, engagement with the Service has also been on the rise. In the last financial year the ATO received 897 voluntary disclosures, which is the highest on record received since the system was established and represents an 11% increase from the previous financial year. Despite the increase, there is still misunderstanding about how, and when, to use the Service.

Joshua Green, Maddocks

What is the SMSF early engagement and voluntary disclose service

This Service enables SMSF trustees and professionals to engage early with the ATO by voluntarily disclosing their unrectified contraventions of the superannuation law. Those who utilise the Service work with the ATO to jointly agree on a proposed plan for rectifying the disclosed contravention.

The main benefit of the Service is that when a SMSF trustee or professional voluntarily discloses unrectified contravention before an audit, the ATO will take this it into account when they decide what enforcement action to take, and the appropriate level of remission of administrative penalties.

Importantly, the SMSF auditor is still required to report regulatory contraventions via an Auditor/actuary contravention report (ACR). So long as a ‘SMSF regulatory contravention disclosure’ form (Form) has been submitted to the ATO before an ACR and no additional information is brought to the ATO’s attention which would warrant an investigation, an audit will not be commenced against the SMSF.

Who can use the Service?

A SMSF trustee can utilise the Service. So too can SMSF professionals – for example, tax agents, financial planners, accountants, lawyers, as well as fund administrators acting on behalf of SMSF trustees.

If a SMSF professional lodges the Form, the Form must be signed by at least one of the trustees for the fund.

In circumstances where the SMSF professional is not registered with the ATO as an authorised representative of the fund, written authorisation which has been signed by the trustees must also be provided to the ATO.

When can the Service be used?

The ATO’s guidance outlines that the Service should be used when it is clear there has been a contravention of the superannuation law or regulations and the contravention remains unrectified. If you are unsure as to whether a contravention has occurred, you should first obtain legal advice and/or consider writing to the ATO and requesting advice as to whether, in their view, a contravention has occurred.

It is recommended that the SMSF trustee seek guidance from a SMSF professional about rectifying the contravention so that a rectification proposal is included in the Form. The ATO has noted, however, that they encourage SMSF trustees to proceed with the disclosure of their unrectified regulatory contraventions before a SMSF auditor advises the ATO of the contravention. Ultimately, the ATO wants to first hear of the contravention via the System rather than through an ACR or other means.

How do I voluntarily disclosure to the ATO?

Voluntary disclosure must be done via filling out the Form.

Along with providing the ATO with all relevant facts and supporting documentation, a rectification proposal or proposed enforceable undertaking is required to accompany the Form. The proposal should include a full description of the actions the trustee proposes to take to rectify the contravention.

The ATO flags that it is important to start the rectification process as soon as possible and not to wait for a response before taking action. Rectification should occur within a reasonable period of time and the ATO considers that it would be unusual for the process to exceed 12 months.

The Form can be submitted to the ATO via email, post, or, if a tax agent is submitting the Form on behalf of their client, the secure mail in Online Services for Tax Agents is also an accepted option.

As a trustee, what action might I expect the ATO to take when dealing with my voluntary disclosure?

As we cited earlier, the ATO has established this Service as a means of encouraging SMSF trustees to come forward and voluntarily disclose as and when they become aware of a contravention. Accordingly, when they decide on what enforcement action or administrative penalties are necessary, the nature and timing of the disclosure and the submitter’s willingness to engage throughout the disclosure process is all taken into account.

While use of the Service does not shield SMSF trustees from penalties, the ATO is clear that they prefer to engage with trustees to help rectify contraventions and bring funds into compliance. Trustees can expect this preference to result in more favourable treatment where regulatory contraventions are reported early via the System, rather than picked up in an ACR. Of course where contraventions are non-incidental, or made with deliberate contempt of the rules, harsher enforcement actions can be expected.

More information from Maddocks

For more information, or if as a SMSF trustee believe you may be in contravention of the SIS Act or its regulations, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Tax and Structuring or Corporate and Private Clients teams.

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Lawyer in Profile

Leigh Baring
Leigh Baring
+61 3 9258 3673

Qualifications: LLB (Hons), BEc (Hons), Monash University

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

Leigh regularly provides advice on:

  • structuring of businesses and transactions,
  • mergers and acquisitions,
  • corporate reorganisations and distributions,
  • sale of businesses,
  • demergers,
  • capital raisings,
  • joint ventures and property developments,
  • international tax (both inbound and outbound), and
  • succession planning and liquidations.

His advice covers both direct and indirect tax considerations.

Throughout his career, Leigh has been at the forefront in developing tax-effective corporate, trust and superannuation structures.

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