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ATO, Compliance, Management

Trustee motivation on ATO’s radar

The ATO is looking closely at the motivations behind setting up an SMSF.

The tax office has flagged it will continue to monitor the establishment of SMSFs and will closely focus on the motivations of trustees during the registration process to ensure they are clear on their intentions with the fund.

At the recent Chartered Accountants Australia and New Zealand National SMSF Conference 2018 in Melbourne, ATO deputy commissioner James O’Halloran said one of the fundamental motivations for establishing an SMSF is the desire to be self-directed and self-sufficient in managing one’s retirement savings.

“The importance of an SMSF being a compliant fund is essential, given the concessionary nature of the super settings and implications for the correct tax treatment for income tax purposes,” O’Halloran told delegates.

“A fund that is not compliant and not operating as intended is of concern, and for that reason we seek to take action, as you’d expect us to on your behalf.

“To this end, what we seek to see through our registration processes is that individuals establishing a fund are clear about their motivation for setting up the fund. It is not a minor decision.”

In addition, the ATO considers whether an SMSF is the right vehicle to meet their short and long-term goals.

“That’s a function of individual circumstances and perhaps cost and effort judgments, and knowledge,” he said.

“The costs are also perhaps a function of how much effort and risks people are prepared to take with what effectively is their retirement savings.”

He noted the tax office recognises the valuable contribution made by tax agents and advisers in guiding the decisions of SMSF members and trustees.

“To be clear, the ATO does not have prudential oversight of SMSFs,” he said.

“This is why we have always emphasised working in partnership with financial professionals and helping SMSF trustees to understand their obligations.

“In that sense, advice and the role of professionals is, I think, pretty straightforward.”

He said as SMSFs are often affected by a range of life events, which many individuals have little control over, advisers need to consider giving advice generally before the SMSF is established.

“Also, consider the notion of looking forward at what the response will be or the best way to advise, or ask the trustee to consider what the arrangements in place are, subject to events such as divorce or death,” he said.

“But an exit strategy or a transitional strategy when events change is likely to happen through the life of an SMSF.”

According to the ATO, in the 2018 income year, around 26,000 new SMSF registrations were made with about 9 per cent, or 2100, of these funds taken offline for further reviews.

Of these, 29 per cent, or 621 funds, had their Australian business number cancelled and 16 per cent, or 336 funds, had their details withheld from Super Fund Look Up with the public indicator reported as “registration details withheld”.

This was done to ensure ongoing regulatory integrity, O’Halloran said.

He underscored the “withheld” status means third-party employers or super funds cannot pay any contributions or rollovers to the fund.

“This is a necessary safeguard to protect against non-genuine players who want to be in the SMSF sector for apparent ‘non-retirement’ reasons,” he said.

“In context, a lot of SMSF applications go through straightforwardly, as they should, and the registration process remains very important.”

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