SMSF trustees looking to tackle an in-house asset (IHA) rule breach from 2019 should be actively working to correct that breach and not rely on a recent ATO announcement that it would not take compliance action against funds for any breaches, according to an SMSF legal firm.
Cooper Grace Ward partner Clinton Jackson said any breaches that occurred within the 2019 financial year had taken place before the ATO’s announcement, which, at present, only applies to the 2020 financial year.
Speaking as part of a webinar late last week, Jackson pointed out any IHA breach, regardless of the year in which it took place, would still require an SMSF to make and implement a written plan as to how the fund would get back under the 5 per cent threshold allowed for IHAs.
“The current approach to IHA rules are not legislation but an ATO concession, and it remains important to do things properly because the ATO gets to choose how to apply that concession,” Jackson said.
“So, there are things people need to be careful of and the concession only applies for the 2020 financial year in-house asset breaches. Nothing as part of the ATO’s release says if there is a breach in the 2019 financial year that they will take the same approach.
“If you have a breach that applies to that year, you need to be working with the ATO in relation to what their expectations are, particularly if you are unable to comply with your plan and get your in-house assets back under 5 per cent.”
He said SMSF trustees were still required to make a written plan and attempt to implement it, even if they could not do so fully, and if they did not “the ATO will not be very helpful when it comes to assessing the fund when it comes compliance with the in-house asset rules”.
Additionally, he said the ATO compliance approach did not, at present, apply to any years after 2020.
“The ATO is being very helpful, but the same thing would apply if this issue continues into the 2021 financial year and at the moment this does not extend to that year either,” he noted.
