ATO, Compliance

ATO data lifts need for warnings

ATO investment strategy compliance

New ATO data-checking abilities mean trustees need to comply with investment strategy guidelines and advisers should be promoting this compliance.

SMSF practitioners should continue to warn clients about the need to put in place an adequate investment strategy as the ATO now has the tools to monitor non-compliance and directly penalise trustees, according to an SMSF technical expert.

I Love SMSF chief executive Grant Abbott said the letters sent last year to 17,700 funds that held property through a limited recourse borrowing arrangement (LRBA) indicated the ATO had the ability to see what trustees were doing and the willingness to take enforcement action against them.

“We have seen the letters sent to people with LRBAs requesting them to have an investment strategy and if they don’t have one, the fine for trustees is $4200,” Abbott said at an investment strategy briefing in Sydney today.

“This is a big stick that has come out, as opposed to making a fund non-compliant, and it is the first time the ATO is starting to hit people with fines.”

He said there had been low levels of enforcement from the ATO commissioner in the past because the regulator did not have the systems to monitor breaches in the SMSF sector.

“Remember the old reasonable benefit limit forms we filled out. They were never used, but put in archive boxes in a warehouse and no one looked at them. Now that does not happen because we feed data into the ATO computers and the ATO can check that data,” he said.

“Auditors are at the forefront of reporting for the commissioner, who is ‘sacrosanct’ about what he wants you to report on, and the rest of us need to reframe our relationship with clients and alert them to the fact that the commissioner has a new guideline.”

He also claimed as part of its next review of SMSF data the ATO would begin looking at trustees who were members of more than one fund or who held cryptocurrency, and this meant SMSF practitioners and advisers had to be proactive with clients and offer solutions.

“This may mean providing an investment questionnaire and building a strategy for them. Any which way, you have to offer a solution and if they do not want that, get an indemnity from them because clients forget things that were discussed with them,” he said.

Auditors should also seek an indemnity from clients who have been given a qualified audit report but have chosen not to rectify any issues identified by the auditor, he said.

“Give them a chance to rectify and if the client does not want to do that, have a strong letter that explains that under the investment strategy guidelines the commissioner can fine them $4200,” he noted.

“Being hardline helps administrators, accountants and advisers because it puts the onus back on the client. The commissioner has gone past auditors and advisers and gone straight to trustees. Unfortunately, trustees have limited knowledge, so we need to frame up the issues for them.”

ATO SMSF segment assistant commissioner Dana Fleming recently flagged the regulator would be taking a tougher approach to breaches by SMSF trustees after an internal review found its enforcement powers were not used consistently when dealing with SMSF-related matters.

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