ATO losing patience with misbehaving SMSF Trustees

However, in a development about which SMSF Trustees should be concerned, the ATO is increasingly using the ultimate sanction: making an SMSF non-complying.

It seems that the ATO has made 24 SMSFs non-complying in the first quarter of the current financial year (the same number of SMSFs which were made non-complying during 2006/07).

The ATO policy for the issue of a non-compliance notice is set out in the ATO guideline PS LA 2006/19 (issued November 2006).

Generally non-compliance is the ultimate sanction for a SIS Act contravention and only applies in the most serious and extreme cases.

According to PS LA 2006/19 the factors to be taken into account by the ATO in deciding to issue a non-compliance notice are:

• whether the contravention amounts to an offence or the contravened provision is a civil penalty provision (not every SIS Act contravention is an offence and not every SIS provision is a civil penalty provision.  It is a precondition that the contravention constitute an offence or that the SIS provision which has been contravened is a civil penalty provision);
• the taxation consequences of making the super fund non-complying – for example, are there innocent members who will be adversely affected?;
• the seriousness of the contravention:  whether the contravention involves a substantial proportion of fund assets; whether the contravention has exposed the assets of the fund; whether there have been a number of contraventions; and whether the trustees have been reckless or intentionally disregarded the relevant SIS provisions; and
• other relevant considerations:  has the trustee rectified the contravention? Has the fund otherwise been well administered (ie returns lodged on time, no contravention reports)?

An unstated but very important element is whether the SMSF trustees have been co operative and open with the ATO.