The number of SMSF trustees not lodging an annual return remains at a high level, forcing the ATO to ask 24,000 funds why they should not be ruled non-compliant.
ATO SMSF segment assistant commissioner Dana Fleming said the regulator’s current figure for non-lodging funds was around 87,000, made up of 63,000 that were lapsed lodgers and 24,000 that had never lodged a annual return.
Fleming presented the figures during a presentation at the SMSF Association 2020 National Conference today and did the same in 2019 where lapsed-lodging funds numbered 64,000 and never-lodging funds were 30,000.
“Non-lodgement continues to remain a key focus for us because the numbers are still quite concerning,” she said at the conference being held on the Gold Coast.
“The never-lodged population is of concern to us because it is highly correlated with illegal early release. If you think about it, if you roll over your money from an APRA (Australian Prudential Regulation Authority) fund into an SMSF with the objective of taking it out for another purpose, it is highly unlikely you will lodge your first return to tell us that.”
She said collectively there were close to 90,000 SMSFs that were not up to date with fundamental lodgement obligations.
“I am concerned about that because we have no visibility as to whether those retirement savings are there, are not there, are at risk, or not,” she said.
“We have written to the never-lodgers, who we can see from their APRA fund that there has been a reduction in their balance, and asked if they really meant to operate a fund, but we are still really concerned there is a fundamental problem with a segment of the population that is not taking their obligations seriously.”
Earlier in the presentation, she indicated the ATO would be taking a stronger approach on breaches of a trustee’s obligations, including the imposition of administrative penalties.
As part of this approach, she added the regulator had written to SMSFs that had never lodged an annual return, conducted a follow-up and would now ask them to show cause as to why further action should not take place.
“We are about to issue what is called an ‘orange letter’, which is basically a show-cause letter that will be our firmest action and warning that we will consider making the fund non-compliant if they don’t engage with us,” she said.
She also highlighted an increase in the level of regulatory contraventions from the 2018 to 2019 financial years, but noted the issues had remained static.
For 2018, there were 8215 SMSFs with 16,909 regulatory contraventions compared with 10,330 SMSFs with 27,719 regulatory contraventions in 2019.
“The most common contraventions remain, and have been over five years, loans to members (21.1 per cent), in-house asset breaches (18.5 per cent) and separation of assets (12.7 per cent) where there has not been clear record-keeping to keep the SMSF assets separate from the personal assets of members,” Fleming said.
“I do want to remind everybody that this is just 2 per cent of the population and that has been a steady number for many years. We are talking about a very small proportion of the population, but in the context of $750 billion, that is not an insignificant amount of retirement savings.
“The good news, which I would like to emphasise, is in terms of those 10,000 funds, 50 per cent do self-rectify before we get the auditor contravention report, which shows a high level of engagement by trustees.”
