Anyone who has dealt with the ATO recently know that they have been very nice. All warm and gooey like a chocolate volcano you get from San Churro that my wife keeps going on about.
It makes you feel good knowing the ATO is by your side with a comforting arm around you.
Except that is about to change if you have a Self-Managed Superfund (SMSF) and have not lodged a SAR return.
This return is in addition to the Income Tax Return so many accountants do not complete them.
What is an SAR Return?
An SMSF needs to lodge a SAR once the audit of the SMSF has been completed. It includes super information, member contributions and also details on the SMSF supervisory levy.
The ATO has explained how it will approach SMSFs for the non-lodgement of SARs. The ATO have told us they will undertake 3 steps as follows:
The ATO will send letter number 1 to trustees letting them know which lodgement years outstanding and what actions need to be taken.
If action is taken this will be the end of the matter. If no response is received, you will get Letter number 2
This will be a warning letter warning of the consequences of non-lodgement for the SMSF and its trustees. This will include details about penalties and charges for non-lodgement as well as determinations etc.
If this is not responded to get ready for letter number 3 which is a ‘last chance to comply’
The ATO will follow up with a third letter. This letter will ask for reason why lodgement has not been made and why the ATO should not request payment of fines and penalties.
What exactly will the ATO do?
They can charge an administrative penalty of 10 penalty units which is another way of saying an extra 10% tax.
Eg A superfund completes tax returns which show $10,000 in taxes due but did not lodge its SAR. 10 penalty points effectively means 10% so you will be fined $1,000.
2. Default assessment for each overdue year
A default assessment is an assessment that is made by the ATO.
In other words, if you do not give figures to the ATO they will make up whatever figure they like (usually not in your favour) and you have to prove they are wrong.
And because we are dealing with the ATO who love fines, they will also impose penalties.
3. Make the Fund non-complying!
Not a good outcome.
The reason for keeping money in Super is the tax benefits. Lose that and it is pointless.
If the ATO makes a fund non-compliant the fund pays tax at the highest rate for the entire period it is non-complying. In other words 45%.
4. Disqualification of the trustee
The ATO may disqualify an individual from acting as trustee or director of a corporate trustee, if they have contravened superannuation law.
Not a great place to be.
Why has the ATO Reverted from a Chocolate Volcano to a Real One?
They believe that non-compliance usually means there are other issues in the fund and there may be more breaches of the law.
Superannuation regulation and laws are very strict so a breach can easily be made.
What should you do?
Here is a couple of things you should do:
- Get in touch with your SMSF administrator, if you do not have one then contact your accountant. Get in touch with them TODAY to ensure you are compliant.
- If you are not compliant, start the process to become compliant and let the ATO know you are dealing with this before you receive Letter number 1.
- Do not ignore any letters from the ATO. If you get letter number 1, start the process and keep the ATO in the loop at all times.
If you need any help with completing your SAR, please contact the office on 1800 281 038