The ATO has labelled illegal early access to superannuation money held in SMSFs as the current leading area of concern in its oversight of the sector, noting more funds appear to be at risk of breaching the access rules.
ATO SMSF risk and safety assistant commissioner Justin Micale said while the regulator had a number of areas of focus in the sector, illegal early access was at the forefront.
“The issues we are most concerned about remain consistent. We have a strong focus on regulatory breaches and tax planning arrangements which inappropriately reduce the tax payable of individuals and entities associated with the fund,” Micale said at the Chartered Accountants Australia and New Zealand National SMSF and Financial Advice Conference 2023 in the Hunter Valley last week.
“This is not what I’m here to talk to you about today because our greatest area of concern is illegal early access.
“When someone does something wrong with their SMSF, it invariably involves them accessing some or all their retirement savings before meeting a condition of release.
“This is a major focus for the ATO. It is clearly in all of our best interests to get on top of this as the consequences are significant and have the potential to impact the integrity and reputation of the sector.”
Micale said the ATO had started a project to track the size of illegal early access withdrawals and those SMSFs likely to breach the rules, highlighting common behaviours that are key indicators illegal early access has or will take place.
“Firstly, far too regularly, we identify new trustees who enter the system with the sole intent of taking all their retirement savings before they’re entitled to,” he said.
“A key marker for us is where newly established SMSFs have received a rollover but have not lodged their first-ever annual return.
“Currently 17 per cent of the 28,000 funds registered in 2022 have failed to lodge their first return. Of these [17 per cent], 2500 appear to have rolled money into their SMSF. This suggests they may have deliberately entered the system to illegally access their super.
“We also know some existing trustees inappropriately access their super early and stop lodging to avoid detection.
“For the 2022 year, there are around 32,000 SMSFs with members that have not yet reached preservation age that for the first time have failed to meet their lodgement obligations. While there may be legitimate reasons for these delays, this group certainly presents with a heightened level of risk.”
He added the 11,500 auditor contravention reports received for the 2022 financial year, which include 20,000 contraventions, also contain instances of illegal early access.
“Almost 35 per cent of these contraventions suggest trustees may have inappropriately accessed their retirement savings by breaching payment standards, entering into prohibited loans with members, relatives or related entities,” he said.