SMSFs seeking to make a voluntary disclosure to the ATO to mitigate penalties for a breach should also show they have corrected any problems and taken action to prevent further issues, according to an SMSF administration firm.
Heffron client relationship manager Sean Johnston said the outcome of a voluntary disclosure may have a more positive result for the SMSF if it could prove remedial action was being taken.
“Voluntary disclosure is going hat in hand to the ATO, admitting you have done something wrong and asking if you could be allowed to fix it or if it could not be harsh with penalties,” Johnston said during a recent online briefing.
“What we recommend, if you are doing a voluntary disclosure, is to try and ‘bargain’ this away, so don’t go to the ATO and say ‘I would like you to not put penalties in place’, but say ‘I would like you to not put penalties in place because I’ve done [something about it].
“That action might be a trustee education course, disposal of the asset, brought the fund up to date, made an enforceable undertaking to not be an SMSF trustee, or even to roll the money in the fund to a public offer fund.”
He was speaking in regards to an SMSF that had purchased non-collectable motor vehicles from a related party of the fund and had then leased the cars back to the same related party for use in its motor vehicle hire business, but had yet to receive some lease payments and was also running late in lodging annual returns.
Heffron SMSF technical and education services director Leigh Mansell added that in a case such as this, the fund should look at how many breaches it has and how far it will go to rectify them as part of its disclosure process with the ATO.
“When we go down the path of voluntary disclosure, I look at the end game first and work out what the client is prepared to do and then structure voluntary disclosure around that,” Mansell said.
“If the SMSF is asking the ATO to be lenient on penalties and it asks what will the fund do in exchange for that, and the answer is nothing, then you don’t have much of a lever to pull with the ATO.”
Johnston added auditors should also draw a hard line with helping SMSFs that are unwilling to rectify breaches.
“If they are not going to rectify the breach, don’t bother trying to mitigate these penalties because there’s nothing you can offer to the ATO,” he said.
“Inform the client, let them know what the risks are, let them know what they’re facing and go from there.”
