A senior SMSF executive has warned individuals facing breaches of the in-house asset rules not to think inaction will provide a satisfactory solution in the belief the ATO will never discover the indiscretion.
“One of the things I’ve had enough experience with in the industry and dealing with the tax office at various times when it comes to in-house asset indiscretions is to state upfront [that you have] a plan to sell down the assets by the following 30 June to get below the 5 per cent [limit],” Smarter SMSF education and technical manager Tim Miller told practitioners during a SuperGuardian technical webinar held last week.
“However, there are still people in the industry who say don’t ever divulge [information] to the [ATO] because it might never find [the presence of compliance breaches].
“I take a different approach to that sort of concept. If you know that something has gone wrong, particularly in this investment space, I’m much more in line with advocacy to go and put your hand up and say to the commissioner ‘this is the error and this is the rectification path we would like to take’.”
According to Miller, SMSF trustees finding themselves in a position where they have breached the in-house asset rules already know the worst-case scenario they will face is having to sell the offending item as quickly as possible.
“So by going and offering other alternatives to ensure you don’t put yourself into the position again – there’s no harm in that. There is absolutely no harm in making a suggested course of action to the commissioner, but appreciate the endgame may be that you are forced to sell that asset,” he noted.
“I think that opens [the way] for far better dialogue with the ATO, particularly as you’ve been the one to approach [the regulator] rather than trying to sweep the breach under the rug.”
Further, he pointed out case law indicates opposing the ATO’s stance on the treatment of breaches is highly unlikely to be a successful course of action.
“Your batting average [will be] quite low if you think you’re going to beat the commissioner [arguing] your structure is better than his structure from a conceptual point of view,” he said.
