The self managed superannuation fund (SMSF) space has always been a complex area for trustees, beneficiaries and advisers. In the past few years, the ATO has made many concessions and has put compliance action on hold because of COVID-19. However, for the 2022–2023 year and beyond it’s looking to scale up its compliance program as a reaction to indicators of heightened risk in the sector.
Recent statistics indicate that there are around 600,000 SMSFs, with over 1.1 million members holding an estimated total asset value of $876 billion.
While the ATO’s main compliance focus will always be on any activity that puts retirement savings at risk or inappropriately takes advantage of the concessional tax environment, in the near-term it will focus specifically on illegal early release of super in all forms. This is when individuals access their retirement savings before a condition of release has been met. This type of activity is currently on the rise.
One of the big red flags that the ATO looks out for is when individuals establish their SMSF and initiate a rollover but then fail to lodge a corresponding first annual return. This is a good predictor that an illegal early release has occurred, either as a result of deliberate behaviour or participation in a scheme.
New registrants that do not lodge will now be targeted with a “three strikes and you’re out” compliance campaign. The ATO will first issue a “blue letter” that encourages the SMSF trustees to take immediate action to lodge, offering a pathway for those who need support. If no response is received from the blue letter, the ATO will follow up with an “amber letter” warning trustees of the consequences of failing to lodge their return. Finally, if no response is received from the amber letter, a final warning or “red letter” will be issued advising the trustees that the ATO has commenced the disqualification process and will consider other enforcement action.
The ATO issued its first and second batches of “red letters” to funds in early April and June 2022.