Bring-forward measures and 6-member SMSF bill passes Parliament

The measures to extend the bring-forward age up to 67 and the bill to increase the number of members allowed in an SMSF have passed both houses of Parliament.

On Thursday, both the Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 and the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 passed through the House of Representatives and the Senate.   

The bring-forward measures will amend the Income Tax Assessment Act 1997 to enable individuals aged 65 and 66 to make up to three years of non-concessional superannuation contributions under the bring-forward rule.

Previously, members under age 65 at any time in a financial year may effectively bring forward up to two years’ worth of non-concessional cap for that income year, allowing them to contribute a greater amount up to $300,000 without exceeding their non-concessional cap.

This is known as the “bring-forward rule”. The number of years that may be brought forward into the current financial year is determined by the member’s total superannuation balance at 30 June 2019.

This bill would amend sub-section 292-85(3)(c) of the Income Tax Assessment Act 1997 to allow the bring-forward rule to be used by members under age 67 at any time in a financial year. This amendment would be effective from 1 July 2020 onwards.

This initiative is implemented through three changes where the age at which the work test starts to apply for voluntary concessional and non-concessional superannuation contributions is increased from 65 to 67, the cut-off age for spouse contributions is increased from 70 to 75 and enabling individuals aged 65 and 66 to make up to three years of non-concessional superannuation contributions under the bring-forward rule.

Upon passing the bill, the government had also agreed to two One Nation amendments.

Amendments made by Pauline Hanson’s One Nation party included the removal of excess concessional contributions charge from 1 July 2021 and no deductions for recontributions of amounts withdrawn under COVID-19 early release, where recontribution is made from 1 July 2021 to 30 June 2030.

The removal of excess concessional contributions charge removes the application of an excess concessional contribution charge that applies to any additional tax liabilities that arise due to a member exceeding their concessional contributions in a year, according to Colonial FirstTech.

Meanwhile the re-contribution of COVID 19 early release amounts, would allow a member that released amounts from superannuation under the COVID 19 early release rules to recontribute those amounts without counting towards the non-concessional cap. The amendment also confirmed they cannot be claimed as a tax deduction.

CPA Australia external affairs manager Jane Rennie said allowing members to re-contribute COVID-released super savings will help restore their long-term financial security and mean they are less dependent on government support in retirement.

Another proposed amendment would also increase the cap at which a 15 per cent concessional tax rate applies to superannuation contributions by $5,000 to $32,500 for people aged 67. The cap then increases by $5,000 a year each year until a person turns 71, however this proposal was rejected by the government.

Meanwhile, the six-member bill amends the SIS ActCorporations ActITAA 1997 and SUMLMA to increase the maximum number of allowable members in SMSFs from four to six. This bill also amends provisions that relate to SMSFs and small APRA funds.

These amendments ensure continued alignment with the increased maximum number of members for SMSFs.

The Government said increasing the allowable size of these funds increases choice and flexibility for members. SMSFs are often used by families as a vehicle for controlling their own superannuation savings and investment strategies.

For families with more than four members, currently the only real options are to create two SMSFs (which would incur extra costs) or place their superannuation in a large fund. This change will help large families to include all their family members in their SMSF.

The SMSF Association in its Twitter update that whilst it doesn’t expect this change will lead to a significant increase in the number of SMSFs being established, it will provide greater investment flexibility, choice and lower fees for those in a position to utilise it.

The expansion of members creates different strategic considerations that can be both positive and negative for SMSFs, and preparation will be needed to see if the changes will be a good fit for the SMSF, according to technical specialists.

The amendments apply from the start of the first quarter that commences after the act receives royal assent.

Source: SMSF Adviser

Pension drawdown rate to remain halved for next year

The minimum pension drawdown rate will remain halved for another 12 months after the federal government announced an extension of the COVID-19 relief measure that was due to finish at the end of the month.

A joint announcement on 29 May from Prime Minister Scott Morrison and Superannuation, Financial Services and the Digital Economy Minister Jane Hume stated the extension would apply to 30 June 2022.

“As part of the response to the coronavirus pandemic, the government responded immediately and reduced the superannuation minimum drawdown rates by 50 per cent for the 2019/20 and 2020/21 income years, ending on 30 June 2021,” the announcement said.

“Today’s announcement extends that reduction to the 2021/22 income year and continues to make life easier for our retirees by giving them more flexibility and choice in their retirement.

“For many retirees, the significant losses in financial markets as a result of the COVID-19 crisis are still having a negative effect on the account balance of their superannuation pension.”

The 50 per cent reduction in the minimum pension drawdown rate, from 5 per cent to 2.5 per cent, was first announced by the government in March 2020 as part of a wider set of COVID-19 relief measures that also included early access to superannuation and a reduction in deeming rates.

The early access to superannuation measure ended on 31 December 2020 and no further announcements have been made regarding deeming rates.

Earlier this year, the SMSF Association said it expected the rate to return to pre-COVID-19 levels.

At that time, association deputy chief executive and policy and education director Peter Burgess noted the rate may still return to 5 per cent following a scheduled review by the Australian government actuary and a finding in the Retirement Income Review that retirees were not drawing down on their retirement savings.

Source: smsmagazine.com.au

SMSF statistics highlight post-COVID recovery

The ATO’s newly released March 2021 quarterly statistical report has revealed the total number of SMSFs will soon hit 600,000, with consistent growth seen across establishments and assets as the industry heads into a post-COVID recovery economy.

The ATO has released the March 2021 self-managed superannuation fund (SMSF) quarterly statistical report revealing the latest statistics on the SMSF sector.

The report shows that there are now approximately 597,396 SMSFs and an estimated 1,120,936 members. These figures point to overall growth in total fund numbers, which have increased on average by around 2 per cent each year over the last five years.

The March 2021 quarter saw more than 6000 new SMSF establishments showing continued growth compared to previous quarters whilst windups have also hit record lows with around 240 recorded. Fifty-three per cent of SMSF members are male and 47 per cent are female whilst 86 per cent of all SMSF members are 45 years or older.

Total estimated SMSF assets increased 3 per cent over the quarter, from $763 billion in the December 2020 quarter to $787 billion in the March 2021 quarter.

The top asset types held by SMSFs (by value) continue to be listed shares (26 per cent of total estimated SMSF assets) and cash and term deposits (19 per cent).

Asset allocations in LRBAS saw its biggest continued increase of around 7 per cent ever since its numbers stagnated during the December 2019-September 2020 period.

Non-residential and residential property also saw higher growth in asset allocations compared to December 2020 numbers.

Overseas assets have also seen an increase across the spectrum of shares, property and managed investments. Meanwhile, cryptocurrency assets continued to see a decline compared to the December 2020 quarter and haven’t seen an increase ever since June 2019.

In the new establishments recorded in the quarter, around 56 per cent of new SMSF members are male and around 44 per cent are female. Individuals aged 35-44 make up the majority of most of the establishments accounting for both male and female.

Meanwhile taxable income ranges of the members of SMSFs which were established during the March 2021 quarter show incomes around $100,000 to $150,000 to be the most common for members accounting around 18.5 per cent.

NSW, Victoria and Queensland continue to remain the top three areas for new funds established.

This comes as new data was also released by the Australian Prudential Regulation Authority showing total superannuation assets increased 3.1 per cent for the quarter and 13.9 per cent over the 12 months to March 2021 to hit a record high of $3.1 trillion.

Total contributions into the system remained broadly steady at $121.2 billion for the 12 months to March 2021, increasing 0.8 per cent compared to the previous year.

Total benefit payments were $18.3 billion for the March 2021 quarter following the conclusion of the Government’s temporary COVID‑19 early release of superannuation measure.

A more detailed overview of the ATO statistical report can be found here. 

Source: SMSF Adviser

ATO embarks on new SMSF research survey

The ATO has embarked on a new survey for SMSFs aiming to further gain a better understanding of the SMSF audience and market.

The new self-managed super funds (SMSF) audience market research survey launched by the ATO aims to target SMSF trustees and advisers to gain a better understanding of the SMSF audience through a profiling and segmentation research study.

Conducted with researchers Whereto Research, the research includes undertaking an online survey, interviews with SMSF trustees and advisers along with further group discussions with SMSF trustees and advisers.

With over 1 million Australians having made the decision to take control over their superannuation and set up an SMSF, SMSF Association technical manager Mary Simmons said the Australian government has recognised the need to find out more about this population.

“To better understand what motivates and influences SMSF trustees, the government has embarked on a new survey, using information from the ATO to randomly select existing SMSF trustees to participate,” Ms Simmons said in the recent SMSFA update.

“The survey is being conducted by an external research provider, Whereto Research, and some of your clients may have already received an invitation to participate.

“Having discussed the survey with the ATO, the SMSF Association can confirm that the survey is legitimate and that trustees should not be concerned.”

Ms Simmons said the motive behind the survey is to get a better understanding of the SMSF community to assist the ATO to develop targeted communication strategies to ensure key messages reach their audience.

“The confidential survey provides the ATO with important information about the SMSF sector and the questions asked are designed to gauge trustees’ understanding of SMSFs and some of the rules and get insight into trustees’ choice of information sources used to manage SMSFs,” Ms Simmons said.

“The ATO also wants to determine trustees’ preferred communication channels to keep abreast of changes and understand who trustees primarily rely on to support them with ongoing investment decisions, advice needs as well as reporting and compliance obligations.”

If advisers have clients that have been invited to take part in the survey, Ms Simmons noted that participation in the survey is completely voluntary and the information collected remains anonymous.

“The survey will take your clients approximately 15 minutes to complete and participants can nominate to partake in subsequent feedback sessions (optional),” she said.

More information on the survey can be found here.

Source: SMSF Adviser

Federal Budget 2021: Necessary super changes welcomed

Superannuation measures in this year’s federal budget have been welcomed as being not too intrusive, but introducing necessary changes that were considered overdue by the sector.

The changes, announced by Treasurer Josh Frydenberg last night, include an extension of the downsizer contribution scheme, the removal of the work test for people aged 67 to 74, an amnesty to allow people to exit legacy pensions and relaxing residency requirements for SMSFs.

SMSF Association chief executive John Maroney said the measures were welcome after “a few quiet budgets for the SMSF sector” and reflected changes sought by the industry body.

“In our 2021 federal budget submission, we advocated for reforms to the residency rules for SMSFs and for an amnesty period to allow SMSF members stuck in legacy pensions to convert to more conventional-style pension products, and we are pleased both measures are included in this year’s budget,” Maroney said.

“Regarding residency rules, we argued in our submission that the existing two-year safe harbour exemption under the central management and control test is too short in the context of modern work arrangements, where executives and other staff are often expected to commit to an overseas placement for more than two years, and that this period should be increased to five years,” he said, adding the extension was in the budget alongside the removal of the active member test.

Financial Planning Association (FPA) chief executive Dante De Gori also welcomed the non-disruptive nature of the measures and supported the work test, downsizer contributions and legacy pension changes.

“The FPA welcomes the government’s decision to introduce flexibility, but not substantial changes to superannuation. Superannuation should not be constantly tinkered with, a position the FPA has consistently held,” De Gori said.

Financial Services Council (FSC) chief executive Sally Loane said the government’s commitment to addressing legacy products, also an area of FSC advocacy, was pleasing, but the move could create other issues for pension holders.

“The ability to move out of legacy pension products, many of which are outdated and expensive, is a welcome move. However, the tax and social security settings will be the key factor [for] consumers and their financial advisers in determining whether to take up the scheme,” Loane said.

Other changes introduced as part of the budget included abolishing the $450 a month earnings threshold for the payment of the superannuation guarantee (SG), which was noted by the SMSF Association, FPA and FSC as a benefit to low-income earners.

Association of Superannuation Funds of Australia chief executive Dr Martin Fahy said this change and the government’s implicit commitment to increasing the SG rate to 12 per cent were important steps in providing adequate retirement savings, particularly for women and younger Australians.

“Australia’s superannuation system enables Australians to retire with dignity. With the legislated increase of the superannuation guarantee to 12 per cent, and a maturing superannuation system, we expect to see a greater proportion of retirees relying less on the age pension and more on their retirement savings,” Fahy said.

He said the removal of the $450 threshold will be beneficial to low-income and casual employees, many of whom are women, and would give them an entitlement that others already had as a right.

The Actuaries Institute also welcomed the removal of the $450 a month threshold, but was critical of the government for not defining the role of superannuation.

“The government has not leveraged the Retirement Income Review to make more impactful changes to the retirement incomes system, such as measures to help non-homeowners (renters) in retirement, in particular some of the most at risk of poverty in retirement – single female renters,” Actuaries Institute president Jefferson Gibbs said.

“The system also still lacks an overall objective for superannuation and its role in supporting retirement incomes.

“The institute urges the government to provide clarity on the purpose of superannuation to enable more substantive reforms to be sensibly made to improve the system.”

Source: smsmagazine.com.au

Super contribution and pension caps set to increase

For the first time in five years, the super contribution and pension caps are set to increase. Thanks to inflation and indexation, the cap on concessional contributions will increase from $25,000 a year to $27,500 for the 21/22 financial year.

Concessional contributions include the compulsory 9.5% super guarantee amount that your employer pays on your wages, plus any additional salary sacrifice contributions, plus any  amount you contribute and claim a tax deduction for. In 20/21, they are capped at $25,000 a year (you will pay tax at your marginal tax rate on any excess contributions).

The employer’s contribution rate of 9.5% is also set to increase, to 10.0% from 1 July, and then to 10.5% from 1/7/22, 11.0% from 1/7/23, 11.5% from 1/7/24 and finally to 12.0% from 1/7/25. The Government says that it is “reviewing its position” on the changes, but as they are already legislated and are LAW, it would need to introduce amending legislation into the parliament to stop the increases. With the ALP, Greens and some independent Senators vowing to oppose any Government action to stop the increases, there is considerable doubt it could get its amending legislation through the Senate. The most likely outcome is that it will decide that there are “better battles to fight” and the contribution rate will increase to 10% on 1 July.

The cap on non-concessional contributions will also increase, from $100,000 to $110,000 a year. Non-concessional contributions are amounts that you contribute to super from your own resources and for which you do not claim a tax deduction for. Unlike concessional contributions (which are taxed at 15% when they hit your super fund), there is no tax deducted on non-concessional contributions.

Persons who have high superannuation balances (currently defined as balances over $1.6m) are not entitled to make non-concessional contributions. With indexation, the ‘total superannuation balance’ limit, which governs this, will increase on July 1 from $1.6m to $1.7m.

This increase will also impact the ‘bring-forward’ rule. Under the ‘bring-forward rule’, if you are under 65 years of age (legislation has been introduced but not passed to increase this to 67 years) and your total superannuation balance is less than $1.7m, you can potentially make 3 years’ worth of non-concessional contributions in one year. With the non-concessional gap increasing to $110,000 from July 1, this means that you could contribute up to $330,000 into super in one hit. A couple could get $660,000 into super.

The increase in the ‘total superannuation balance’ limit from $1.6m to $1.7m will also increase eligibility for the government co-contribution and spouse tax offset.

On the pension side, the limit that controls how much of your super monies can be transferred to the “tax free” pension phase of super, the transfer balance cap, will be increased by $100,000 to $1.7m from 1 July. Persons who have already accessed their full cap of $1.6m won’t be eligible to contribute any more monies into the pension phase. Those who haven’t accessed any part of their cap (in other words, have never commenced a pension) will automatically get access to the higher limit of $1.7m. If you have started a pension but haven’t accessed the full amount of the cap, you will get a proportional increase. For example, if you started a pension of $800,000 under the old cap of $1.6m and had cap space of $800,000, post indexation, your cap space will increase proportionally to $850,000 (meaning that your transfer balance cap will now be $1,650,000).

For defined benefit pensioners, the income cap of $100,000 will increase to $106,250. As a result, some pensioners may see a small increase in their pension as the amount of tax being withheld by their super fund is reduced.

Unrelated to the indexation of monetary caps and limits is the end of a special Covid-19 relief measure. This saw the halving of the minimum annual pension payment that account based pension holders were required to take. From July 1, these will revert back to the pre-Covid levels: a minimum of 4% of your account balance if under 65 (for example, if the account based pension has a balance of $1,000,000, the minimum annual pension payment is $40,000); 5% of the balance if aged from 65 to 74; 6% if aged from 75 to 79; 7% if aged from 80 to 84; 9% if aged from 85 to 89; 11% if aged from 90 to 94; and 14% if 95 years or older.

Source: Switzer Daily

Downsizer contribution conditions clarified

SMSF members planning to make a downsizer contribution from the sale of their home will not be restricted as to the source of those funds and may instead transfer other assets of equal value into the superannuation, according to the SMSF Association.

In an update on the industry body’s website, SMSF Association technical manager Mary Simmons said the view that downsizer contributions could only be made from the proceeds of the sale of a home was incorrect and the organisation had sought clarity from the ATO on the issue of in-specie downsizer contributions.

Simmons said the association took that step after members expressed concerns about the regulator’s position on the matter stemming from statements in Law Companion Ruling 2018/9, which relates to contributing the proceeds of downsizing into superannuation.

“In particular, paragraph 62 suggests that if an individual is eligible to make a downsizer contribution, they can only make it as an in-specie contribution if they use the proceeds of downsizing to buy the asset they are contributing. This suggestion is incorrect,” Simmons said.

“The ATO recently confirmed to the SMSF Association that provided the downsizer eligibility criteria is met, there is no need to analyse how the contribution is funded, provided it does not exceed $300,000 or the total capital proceeds from the sale of the qualifying dwelling.

“This means that an individual can make a downsizer contribution as an in-specie contribution, provided the value of the asset is equal to all or part of the proceeds from the disposal of the qualifying dwelling.”

She gave the example of a couple in their 70s selling a home for $1.35 million and, having met the eligibility requirements to each make downsizer superannuation contributions of $300,000, they do so by transferring a portfolio of listed shares, which they already own individually, into their SMSF.

For the contribution to take place, the market value of the in-specie contribution of listed shares would be equal to $600,000 and an off-market share transfer form would be executed and given to the SMSF trustee within 90 days of receiving the proceeds from the sale of their home, she added.

“With the existing strict eligibility criteria that an individual must satisfy to be eligible to make a downsizer contribution, we are pleased that the ATO’s interpretation supports the intent of the law and does not see any mischief if the contribution is funded via an in-specie transfer of any asset(s) provided it is at arm’s length and permitted by section 66 of the Superannuation Industry (Supervision) Act.”

Source: smsmagazine.com.au

SMSFs looking to ride the crypto wave

Growing interest in cryptocurrency investment in Australia has spread to the SMSF sector, with funds drawn to the appeal of capital gains and the opportunity to add new asset classes to their portfolios, says a cryptocurrency investment provider.

Cointree CEO Shane Stevenson said there’s no doubt that bitcoin is now being seen as an alternative to gold as a store of value, reflected recently by the rising price of bitcoin — currently hovering around the $75,000 mark.

He noted additionally the fact that cash, term deposits and bonds have less appeal because of the historically low interest rates, causing cryptocurrencies to become more attractive to SMSFs.

“How they invest, however, depends on whether they are in the accumulation or retirement phase, the fund’s risk profile and where fund members are at in their superannuation journey,” Mr Stevenson said.

“For those in the accumulation phase, we are finding investors and SMSFs are more prepared to take a bigger risk, as their focus is on growing their funds under management, while for those in the retirement phase, it’s a far more cautious approach, with cryptocurrencies typically a smaller percentage of their portfolios.

“Either way, when investing in the accumulation or retirement phase, the key theme we’re seeing is that the investment dovetails with the goals of the fund and aligns with their investment strategy.”

Under ATO guidelines, SMSFs can invest in crypto but should consider it good practice to ensure it is under the fund’s trust deed, is in accordance with the fund’s investment strategy and complies with the Superannuation Industry (Supervision) Act (SISA) and the Superannuation Industry (Supervision) Regulations (SISR).

Previously, it was flagged that with super funds now identifying on their tax return whether they are investing in these assets, it could be an indication that the ATO is aware that it is a challenging asset to hold in a super fund and that it is concerned that some funds may be getting it wrong.

Speaking on the requirements and challenges to choosing crypto as an SMSF option, Mr Stevenson said there are still hurdles limiting SMSFs from investing in cryptocurrency.

“It’s a relatively new asset class and many financial advisers lack experience with this type of investing,” he said.

“But this is changing. Cryptocurrency is proving to be an attractive option for many SMSFs that have done their research and are comfortable with the risk.

“We are also finding a growing number of advisers are coming to Cointree’s account managers wanting to learn more about this asset and how it can be part of an SMSF portfolio. Consequently, we’ve seen 53 per cent more SMSF applications in the last three months than we did in the whole of last year, a trend we expect to continue as SMSFs look to diversify their portfolios.”

SMSFs are a significant pool of investment capital for the crypto market, according to Cointree. Total assets are about $750 billion, and they comprise about 26 per cent of the total superannuation pool of funds.

Source: SMSF Adviser

Six-member fund ideal asset holding structure

The federal government has promoted six-member funds as a retirement income planning tool for families, but this overlooks the investment and borrowing opportunities they can create as asset holding structures for non-related members, an SMSF legal firm has noted.

Townsends Business and Corporate Lawyers said the creation of six-member SMSFs, which is awaiting the passing of legislation to increase the maximum number of members from four, would allow them to be used as asset holding structures as well as a family superannuation vehicle.

“The six-member fund may see more people view the SMSF as an appropriate structure for a wide range of investments, particularly those involving a group of people hoping to pool their resources,” the legal firm said in an update on its website.

“For example, an SMSF may be the structure business buddies use to purchase an asset, rather than being restricted to being a structure only for jumbo families. Provided there is no breach of the sole purpose test, such an approach could result in material benefits.”

Additionally, six-member SMSFs would also have advantages in regards to borrowing and tax that were unavailable to equivalent structures outside the superannuation environment, Townsends added.

“The limited ability to resource the SMSF due to contribution limits can be overcome by borrowing. The SMSF may enhance its capital base through limited recourse borrowing subject to appropriateness, the investment strategy and the LRBA (limited recourse borrowing arrangement) rules,” it said.

“This can provide the SMSF with greater flexibility to invest in more substantial projects or further diversify investments. Loan interest and borrowing expenses are generally tax deductible to the SMSF.

“The SMSF has immense advantages over other commercial structures when it comes to tax, both in terms of the applicable rate of tax and the use of franking credits. The lower tax rate potentially accentuates the compounding effect of earnings reinvestment in the fund.”

The firm noted that while the government first announced plans to create six-member funds in April 2018, claiming it would allow greater flexibility, it had provided little explanation as to how that would occur.

“The enthusiastic Explanatory Memorandum for the [Treasury Laws Amendment (Self-Managed Superannuation Funds)] Bill couldn’t point to any significant need or request for reform. Just 7 per cent of SMSFs in Australia have more than two members,” the legal firm noted, adding that despite the low level of government commentary, SMSF trustees should prepare for the change.

Townsends noted the benefits of a six-member fund would include reduced costs due to shared compliance and administration costs, higher contribution inflows from five or six members, and the sheltering of small super guarantee contributions for younger members from high public offer account fees.

At the same time, six-members SMSFs would have to handle the issues related to more member trustees, children knowing more about their parents’ financial affairs and vice versa, the creation and implementation of different investment strategies for different age groups, and who had control within the fund.

Source: smsmagazine.com.au

‘3 strikes and you’re out’: ATO eyes 80,000 late SMSF returns

The ATO has launched a new compliance campaign aimed at driving the lodgement of SMSF annual returns as it chases 80,000 late returns.

Speaking at the SMSF Association National Conference 2021, ATO assistant commissioner, SMSF Segment, Justin Micale said that while the illegal release of super in SMSFs is a continued concern for the ATO, a stronger focus will be placed on the non-lodgement of SMSF annual returns.

Mr Micale revealed that even with the due date for lodgement of the 2019 SMSF annual return being deferred until the 30th of June 2020, the ATO is tracking around an 86 per cent lodgement rate.

“This means that there are still around 80,000 funds yet to lodge this, so we’ve still got some work to do in this area,” he said.

“We understand it’s been a difficult time and we want to help you where your clients have run into difficulties.

“Our message for this group is simple: if you are experiencing difficulties with lodging outstanding returns, contact us and we’ll help you get back on track.”

While there are many reasons for an SMSF to stop lodging, including people experiencing difficulties as a result of COVID-19, Mr Micale noted recent ATO data also showed that lapse lodgement is often an indicator of broader regulatory issues.

“We’ve found that where an SMSF has an unrectified regulatory contravention in a prior year, they often fail to meet their lodgement obligations in subsequent periods,” he said.

“In recent years, there’s also been an increase in the number of new SMSFs established that failed to lodge their first SMSF annual return.

“This is particularly concerning where we can see a subsequent rollover into this SMSF, as this is a strong indicator that an illegal early release may have occurred.

“Non-lodgement and illegal early release go hand in hand, so you can see why we have a strong focus in these two areas.”

Mr Micale said the ATO will ramp up its messaging about the importance of lodging on time and will be starting a communication campaign where a series of letters with escalating warnings will be issued.

“I suppose you could call it a three strikes and you’re out campaign,” he said.

“Our new approach is to firstly help and support trustees. Our initial blue letter will let them know they are required to take action and lodge their return.

“If we don’t get a response to this letter, we’ll issue an orange letter warning of the potential consequences of not lodging their return.

“This includes imposing failure to lodge penalties for all overdue years, raising default assessments for each year of non-lodgement with penalties of up to 75 per cent, issuing a notice of non-compliance and/or disqualifying the trustee.”

Mr Micale said if the ATO still doesn’t get a response, then it will issue the final red letter which is basically a show cause letter instructing the client to tell them why they shouldn’t be subject to any of the consequences as outlined in the previous letter.

“We’ll be reasonable in our approach to this. For instance, if trustees respond to the issuing of a notice of non-compliance by promptly lodging all over SARs and committing to lodging future SARs on time, we’ll consider a vote revoking this notice,” he said.

“It’s important for us to protect SMSFs that are doing the right thing, so we are very serious about getting on top of this lodgement issue.”

Source: SMSF Adviser