From A to Breach: How and Why SMSF Breaches Occur

What are SMSF breaches and why do they occur?

The term “SMSF breach” has come to refer to any violation of the superannuation fund rules. This includes breaches that are unintentional, inadvertent, or deliberate. However, SMSF breaches occurring can be categorized into two main types:

– The first type of SMSF breach is where the fund has failed to meet its obligations. This may happen due to a mistake or oversight, or because the trustee has deliberately not complied with their obligations.

– The second one is where a trustee has intentionally breached superannuation laws in order to gain an advantage for themselves, or for a related party.

This paper will focus on unintentional breaches, as these are the most common type of breaches and also the easiest to avoid. It is important that trustees understand how an SMSF can inadvertently breach the law so that they can take steps to ensure their fund does not fall foul of superannuation laws.

The main causes of unintentional breaches are:

– Legal misunderstanding

– Inadequate record-keeping

– Non-compliance with the law due to oversight or forgetfulness.

The most common cause of unintentional breaches is a legal misunderstanding. Most trustees are not lawyers (trustees fail), and the legal requirements of SMSFs are not always clear or easy to understand. This is particularly true for complex rules such as those governing related party transactions, which trustees may be unaware of until they have a breach.

– Inadequate record-keeping is another common cause of unintentional breaches. Corporate trustees are required to keep detailed records at all times and these must be available for inspection by the ATO. If records are not kept, the trustees may be held responsible for breaches even if they were unaware of them.

– Trustees who do not understand how to comply with their obligations may inadvertently breach the law. For example, trustees may not realize that they need to prepare accounts or lodge annual returns if their fund is small and does not generate significant income.

What are the consequences of an SMSF breach?

If an SMSF has breached its trust deed and is found to be in breach, there may be consequences. These can include:

-Loss of the tax concessions for any income earned in the fund from that point on;

-Inability to make contributions for any income earned after the breach date,

-Requirement to provide written notice of breaches within 21 days.

How can SMSF trustees avoid breaches?

There are a number of ways that SMSF trustees can avoid breaches. These include:

-Staying up to date with the law and regulations; -ensuring they have sufficient financial knowledge; -being aware of the ever-changing regulatory environment and what it may mean for their SMSF’s investments;

–Seeking professional advice when necessary, and remembering that there is no such thing as a stupid question.

-Having an up-to-date trust deed and investment strategy; -taking advice from the ATO on how to best structure their SMSF, particularly in relation to the use of personal services and family members as trustees; -making sure they choose their investments carefully, and that they are aware of any potential conflicts of interest.

What are some of the most common SMSF breaches?

The most common type of breach is the failure to comply with technical provisions. This includes a trustee not complying with their duties under the Act, such as providing an annual written statement or preparing accounts in accordance with the law.

Other breaches include:

– Not providing financial statements and reports to members or auditors in a timely manner;

– Do not comply with the terms of an audit

– Not complying with the terms of a financial services law

– Not keeping proper books and records, or failing to keep them in an orderly way;

– Breaching a condition of registration (conditions of release)

– Not paying tax on time, or failing to pay it at all

– Not complying with the terms of a financial services infringement notice.

The second most common breach is failing to provide an annual written statement or bank account.

This may be because the trustee has not prepared them, or they have been lost.

It may also be because the trustee has provided them late, or they have been lost in the post.

The third most common breach is failing to obtain a tax file number for the fund and then not lodging the fund’s tax return on time.

The fourth most common breach is failing to lodge a trust distribution statement or an investment income report on time.

This may be because the trustee has not prepared them, or they have been lost.

It may also be because the trustee has provided them late, or they have been lost in the post.

The fifth most common breach is failing to lodge the fund’s tax return on time.

This may be because the trustee has not prepared them, or they have been lost.

It may also be because the trustee has provided them late, or they have been lost in the post.

The sixth most common breach is failing to lodge an investment income report on time.

What are the ATO’s requirements for SMSFs?

The ATO’s requirements for SMSFs are laid out in the Superannuation Industry (Supervision) Act 1993. The legislation sets out how an entity must be established and operate to ensure that it is a complying superannuation fund.

The ATO has issued Supervisory Guide 19 to help trustees, auditors, and other advisers understand their obligations under the SISA 1993 when providing advice or services to SMSFs.

Supervisory Guide 19 is an important resource for anyone who provides advice and services to self-managed superannuation funds (SMSFs). It explains the legislation that applies to SMSFs, and how supervisory arrangements are designed to help trustees meet their obligations under the law.

The guide covers a range of topics including:

The features of an SMSF that make it different from other super funds

The duties of trustees under the SISA 1993 and how these apply in practice

How to recognize when an SMSF is not complying with its obligations, and what should happen next

How to report breaches and suspected breaches of the SISA 1993.

Supervisory Guide 19 also provides guidance on how our supervisory arrangements work in practice, including an overview of the steps

How can SMSF trustees resolve compliance issues?

The Association of Superannuation Funds of Australia (ASFA) recommends that SMSF trustees should have a compliance plan in place to ensure they are compliant. There is no one-size-fits-all approach to compliance, but it may be a good idea for the trustee to set up their own plan.

ASFA recommends that SMSF trustees should:

1) Seek advice and assistance from a suitably qualified adviser (eg. accountant, lawyer, or other professional advisers) when required;

2) Ensure that their SMSF is properly set up and operating in accordance with the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994;

3) Understand their SMSF’s available investment options, contributions rules, and how investment earnings are taxed;

4) Understand the rules regarding contributions, investment and non-concessional contributions limits, rollovers, and transfers;

5) Ensure that their SMSF’s investment strategies are appropriate for the fund’s circumstances;

6) Understand and comply with their SMSF trustee obligations under the Superannuation Industry (Supervision) Act 1993 and related regulations;

What are the ATO’s compliance monitoring and enforcement activities for SMSFs?

The ATO is responsible for enforcing compliance (enforceable undertaking)with the SMSF legislation and ensuring that these funds are not used in a way that would constitute an offence. The ATO has developed a range of compliance activities for SMSFs, including:

– Conducting compliance reviews of the financial performance (financial assistance) and investment activity of an SMSF to assess whether it is operating in accordance with its governing rules;

– Monitoring and analyzing the use of SMSFs to assess whether they are being used for tax avoidance purposes;

– Conducting audits and other compliance activities on a targeted basis, including responding to information from whistleblowers, other government agencies, and the media.

The ATO’s compliance activities are designed to ensure that SMSFs comply with their governing rules, which can be found in the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994.

The ATO has a range of compliance activities that it undertakes to ensure SMSFs comply with their governing rules. These activities seek to ensure that SMSFs:

– Operate in accordance with the SIS Act and regulations;

– Are complying with taxation laws, including income tax, fringe benefits tax, withholding tax, and GST;

– Are not a risk to the superannuation system or members of the public.

The ATO undertakes these activities in a number of different ways. These include:

– Reviewing SMSF annual returns and financial statements as the financial year