SMSFs and compliance: A new urgency

The money which flooded into SMSFs prior to 1 July 2007, now coupled with the ability of SMSFs to borrow through instalment warrant arrangements, has added some urgency to the ATO's compliance objectives. There also seems to be greater understanding between the Government and the ATO concerning SMSF compliance.
 

Charting the ATO's approach to compliance

ClearLaw has over the past two years charted the ATO's evolving approach to SMSF regulation. The most distinctive aspect of this approach has been the shift from an approach grounded in educating SMSF trustees, to an approach which is increasingly grounded in active monitoring and auditing.

With the introduction of the new borrowing rules, the ATO's regulatory impetus has a new sense of urgency. Here's whyâ?¦

The reason is simple. Although SMSFs may only borrow money under limited recourse lending arrangements, there is still increased risk to people's retirement income. Compliance with the basics of superannuation law becomes all the more important when the stakes are raised in this way.

The Government and ATO Bridge the Regulatory Disconnect

Accordingly, the Minister for Superannuation and Corporate Law, the Honourable Nick Sherry, is pushing the ATO's compliance barrow.

In a speech on 10 April 2008, Senator Sherry expressed his concern:

  • that a significant minority of SMSFs are not well managed and that this must be addressed to ensure the security of retirement incomes of SMSF members;
  • at the low level of knowledge which SMSF trustees have of their obligations - including the need to have a current investment strategy which is regularly reviewed; and
  • at the cost of operating SMSFs and, as a consequence, whether SMSFs are a cost efficient vehicle where asset values below a certain level.

All of these comments indicate:

  • a genuine concern within the Government regarding the regulation and conduct of SMSFs; and
  • a commonality of thinking between the government and the ATO concerning SMSF compliance.

The imperative to make sure SMSFs comply and trustees are informed and responsible increases.

Questions?

If you have any questions in relation to this article, or trusts, superannuation or tax generally, please call Maddocks in Melbourne on (03) 9288 055 or in Sydney on (02) 8223 4100 and ask for a member of the Maddocks Commercial Team.