ATO maintaining scrutiny on SMSFs

Professionalism in the self-managed super fund (SMSF) industry has improved greatly, but the ATO must remain firm with the sector, said Tax Commissioner Michael D’Ascenzo.

Speaking at the opening address of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA) conference in Melbourne, D’Ascenzo said that while the level of professionalism has grown in the SMSF sector, it was important to keep up-to-date with professional standards — something he was pleased to occurring after the introduction of SPAA’s specialist SMSF accreditation.

“The vast majority of trustees and professionals are all trying to do the right thing,” said D’Ascenzo. “By and large the industry is in good shape, but there is still room for improvement.”

He said the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission are particularly concerned about illegal early access arrangements, because they occur in two ways: promoters preying on people in financial difficulties or people in ethnic groups who do no understand the full requirements of the law; and identity fraud.

“The consequences for those affected are quite significant,” he said. “We are working closely with professional associations to try to minimise these issues.”

He said another area of concern is the independence of auditors, who have in some cases been too close to funds to satisfy legal requirements. He said in 2008, nine auditors were disqualified and about 350 were being monitored because their relationship with fund members was too close.

He said while breaches and infringements involve a small part of the SMSF sector, the ATO has to be firm because the size of sector is becoming more significant in terms of the retirement income of Australians.

He said 27,000 new funds were registered in 2008-09, bringing the total number of funds to about 416,000 with about 794,000 members.

“Nearly a million Australians are relying on SMSFs as part of their retirement income strategy, with these funds comprising of $384 billion in assets. It is the largest single segment in the super industry,” he said.

Other areas of concern he identified include breaching the borrowing within super rules, exceeding contribution limits (which means members are subject to heavy taxation) and illegal early access arrangements.