The Tax Office is taking a tougher stance in a bid to keep self-managed funds in line.

Max Newnham July 4, 2008 - 10:55AM
http://smallbusiness.smh.com.au/growing/tax/now-you-can-dob-yourself-in-912280922.html

The Tax Office this week issued its long-awaited report on contraventions in self-managed super funds. The report lists the errors made by the trustees of SMSFs that must be reported by auditors of super funds.
Previously, auditors could use their professional judgement on whether they advised the ATO of infringements of the super regulations.

The contravention report is an indication of the tougher stance the ATO will take in performing its role as the regulator of SMSFs, and should be a warning to trustees to fully discharge their duties.

Auditors are now required to report all breaches of regulations in the first year of operation of SMSFs. The accounting and audit cost of SMSFs will rise with this requirement.

The ATO has said this step has been taken to gain a better understanding of how trustees are discharging their duties. They will use this information to better target educational and enforcement activities for SMSFs.

The contravention report is set out in a series of seven questions that, when answered in the affirmative, require the breach of the regulations to be reported. The questions are:Did the fund fail to meet the definition of a SMSF?

As at the end of the financial year, is the SMSF less than 5 months old?
Has the trustees previously received advice of a contravention that they breached again?

Is there an identified contravention from a previous year that has not been rectified at the time the audit is being conducted?

Did the trustees fail to meet a statutory time period by more than 14 days?
Was the total value of all contraventions greater than 5% of the total value of the fund's assets?

Was the total value of all contraventions greater than $30,000?

A super fund meets the definition of an SMSF if it has no more than four members, all members are trustees or directors of a trustee company, no member is an employee of another member unless they are a relative, and trustees are not paid for performing their duties as trustees.

The instruction guide issued to auditors on how to complete the contravention report lists 20 reportable regulations and sections of the act.


The breaches of the super rules most likely to be reported will be failing to segregate super assets from personal assets; buying assets from members; incorrect payment of benefits to members; and failing to provide documents to an auditor within 14 days.

This last regulation is the one that many trustees breach because of the low priority placed on providing documentation to auditors on time.

The inclusion of value limits on breaches of the regulations is a welcome refinement of the contraventions reporting requirements.

Without the $30,000 total value limit, and the 5% of total asset value limit, every simple administration error would have been required to be reported.
The combination of the audit contravention reporting requirements, and the declaration that must be signed by all new trustees of super funds stating that they understand their responsibilities and duties, should result in a greater level of compliance by trustees of SMSFs.

In the past, the ATO has preferred to have mistakes fixed, rather than classing the fund as a non-complying fund. When this occurs, 46.5% of the super fund's assets are taken as a penalty.

If the contravention reports provide evidence of trustees wilfully breaching the regulations, this penalty ay be imposed more regularly.

Questions can be emailed to max@taxbiz.com.au.

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