The ATO recently released its corporate plan for 2025/26 and specified its priorities for regulating the SMSF sector. And to be honest there was nothing new in the areas of focus it outlined for the current income year. But this is nothing to take solace from. In fact, it could be the worst possible outcome foreboding more severe enforcement actions in the future.
One area on which the regulator is determined to shine an even stronger spotlight is addressing the issue of annual return lodgement. This is because the incidence of late lodgement and even non-lodgement of SMSF annual returns does not seem to be improving despite deliberate efforts the ATO has made to try and change the situation.
To this end, trustees should not underestimate the seriousness with which the regulator takes this issue. The ATO said in its own words “lodgement is the most important compliance obligations trustees must meet”.
So why is it treated with such gravity? For one, it ties directly into another area of compliance focus concerning the illegal early access of superannuation benefits. Again here the ATO has noted an increase in individuals using SMSFs as a vehicle to withdraw their retirement savings before they are eligible to do so. Often this has been found to be the result of scams that all financial services regulators are trying to shut down.
So how do these two compliance issues intertwine? Well the ATO has stated on numerous occasions late lodgement and non-lodgement of the SMSF annual return presents a red flag indicating the fund in question may have been established for sinister reasons, that is, to provide a vehicle allowing individuals to roll their existing superannuation benefits into and then take the money out immediately for whatever use they see fit. Of course, these actions will have absolutely nothing to do with funding their retirement.
Further, the ATO treats the SMSF annual return with great importance as it gives them an insight into how the sector is performing on a macro basis and what some of the emerging trends might be. All of this data assists the regulator in having greater knowledge of how to best protect the integrity and operation of the sector.
Right now, late lodgement and non-lodgement of the annual return can attract penalties such as interest charges and the loss of tax concessions and if the tardiness in submitting the return extends for a longer time, the SMSF’s status on the Super Fund Lookup facility will be changed to ‘regulation details removed’. This will prevent the SMSF from receiving any contributions or rollovers.
But even with these penalties in place, this compliance problem is not showing any signs of improvement and in fact is getting worse. This comes at a time when SMSF data collection and reporting is about to become even more important with the impending introduction of the Division 296 tax – the impost on total super balances over $3 million.
They say the definition of insanity is to expect a different outcome from doing the same thing over and over again, and I can’t see the ATO falling victim to this predicament. So while it hasn’t signalled it as such, don’t be surprised if the regulator cracks down even harder on trustees failing to lodge their annual returns in the immediate future.
One thing is certain though. The sector can’t say it wasn’t warned about the issue and as a trustee you do not want to be attracting the ATO’s ire over this type of compliance breach.
Paul Delahunty from the ATO will be presenting at SMSF Trustee Empowerment Day 2025, co-hosted by smstrusteenews and the SMSF Association. To take advantage of the opportunity to hear directly from the regulator, click here to register.