In a recent speech, Justin Micale, ATO Assistant Commissioner of Self Managed Super Funds Risk and Strategy area outlined the risks on ATO’s radar in the SMSF space and provided some insights on approaches the ATO is using to address those risks. While most of these are returning favourites such as identity fraud, investment scams and illegal early access, some new focus areas such as director IDs and winding up of SMSFs are also making an appearance.
Identity fraud and investment scams
According to the ATO, it saw an uptick last year in the number of individuals that were victims to identity fraud, including having SMSF registered without their knowledge and/or having super rolled over into an account controlled by a fraudster. To combat this, the ATO is working with APRA and other regulators and encouraging funds to undertake additional proof of identity checks before rollovers occur. The ATO acknowledges that there have been delays in rollovers caused by this extra layer of checks, but notes that it is necessary to prevent fraud from occurring in the first place.
The other type of fraud the ATO is seeing an increase of is where scammers entice individuals to provide personal information, which may lead to the setting up of an SMSF, and the subsequent investment of SMSF funds into bogus products. Many of these scammers pretend to be financial advisers or impersonate well-known Australian companies. Individuals can check whether they are dealing with a licenced financial adviser by checking Moneysmart’s Financial adviser register.
Illegal early access
The ATO warns taxpayers that there are only very limited circumstances where a member can withdraw their super early. It is seeing an increasing number of SMSF trustees taking advantage of their direct access to their SMSF bank account(s) and are using the money from super to pay for items such as business debts and personal expenses. The ATO is also concerned that there has been a rise in new SMSF registrants entering the system to establish an SMSF to illegally withdraw their super and then abandoning the fund.
To disrupt that behaviour, the ATO, in additional to educational resources, is stepping up its new registrant program where every individual entering the SMSF system is risk assessed to identify those that may be entering for the wrong reasons. According to the ATO, in the last 18 months, this program protected around $200m in retirement savings from leaving the super system illegally.
In addition to the new registrant program, the ATO has also scaled-up its compliance actions in response to the increase in illegal early release. In the first half of 2023, it has disqualified almost 400 trustees and raised more than $10m in extra tax, administrative penalties, and tax shortfall penalties from amendments made to members’ personal tax returns. In conjunction with other law enforcement agencies (eg ASIC, TPB, etc) it is working to stamp out promoters of these illegal schemes.
Director IDs and winding up SMSFs
The ATO noted that there are still around 100,000 directors of corporate trustees (out of approximately 700,000) that are yet to apply for director IDs. Going forward, individuals that are directors of corporate trustees will not be able to register a fund if they have not registered for a director ID prior to their appointment. Even though the deadline has passed for director ID registrations, applications can still be made.
Finalising the winding up of SMSFs is another area the ATO will be targeting. It is seeing a number of funds that remain registered in the system, but which are no longer holding any assets and have not been wound up. In addition, there are also other funds that have been registered, but the trustees have chosen not to proceed. The ATO notes that if these SMSFs are not wound up properly, they may be subject to compliance action which is “clearly a waste of time and resources”.
Have you proceeded down the SMSF path but have decided you no longer need one? We can help you to wind up the fund properly to avoid ATO scrutiny. We can also help with any other aspects of running an SMSF including financial administration and valuing assets to name a few. Contact us today.