The ATO updated its policies around the implication of late SMSF Regulatory returns on Wednesday - alerting trustees and accountants via changes to its website content.
In brief, the new position (from 1 October 2019) is that when a fund is more than two weeks late lodging its annual return, the ATO will change its status on “Super Fund Lookup” (SFLU) to “Regulation details removed”. Since this is where the ATO provides comfort that a particular fund is a “complying superannuation fund”, that status means:
- APRA funds won’t pay rollovers, and
- employers won’t pay Superannuation Guarantee (SG) contributions
to the SMSF.
This has always been a consequence of late lodgement of returns but the timeframe is new – it was previously a treatment reserved for very late returns rather than those missing the deadline by as little as two weeks.
While the status will be returned to “complying” when the return is lodged, historically in our experience this process can take six weeks. (We are hopeful that this may be improved by the fact that the ATO will undertake their new process of removing / restoring complying status at the beginning of every month.) Whatever the length of the delay, however, it presents many challenges, for example:
- What if contributions are an essential part of funding LRBA repayments?
- What if a rollover is being relied upon to settle a transaction?
Why would the ATO do this?
To be fair, there’s a very good reason. To regulate the superannuation system the ATO absolutely relies on the lodgement of statutory returns, including the annual return. Without funds lodging what they are supposed to lodge when they are supposed to be lodging it, the ATO is flying blind. If we wish to continue the freedom to operate a dynamic and flexible SMSF environment without draconian regulation we have to accept that the regulator needs information. Timely and accurate information also helps to dispel myths peddled by those outside the SMSF sector about SMSFs being unregulated, irresponsibly run and ripe for fraud.
While a two week grace period does seem extremely harsh, there are some ways in which it is very beneficial to accountants and SMSF administrators who have trouble “encouraging” recalcitrant trustees to respond to numerous requests for information. In a way, the ATO is voluntarily adopting the “bad cop” role, meaning accountants and SMSF administrators don’t have to.
This change will make it vital that both trustees and advisers help their SMSF accountants to deliver the service we all want to deliver – on time lodgement with excellent client support so that the members can enjoy all the amazing benefits an SMSF has to offer.