Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Coming clean with the ATO ‘best option’ for SMSF trustees
There are two compelling arguments for self-managed super fund (SMSF) trustees to voluntarily disclose breaches of the SIS legislation.
That is the view of businessDEPOT Legal director Neal Dallas and his colleague Victoria Mercer (pictured), who told the SMSF National Conference in Melbourne last week that voluntarily disclosure typically resulted in reduced administrative penalties as well as giving trustees control of the narrative.
Using the case study of a small Queensland business to highlight why this was the best approach in their address to conference delegates, they said the ATO wanted to “incentivise” trustees to come forward – and typically “are more lenient” in their approach if they do so.
In their example, Chester and Marsha owned and operated 1950s-style diners in Queensland, owning the buildings via their SMSF and operating the business through a related company.
“Like a lot of restaurants through COVID, they experienced a downturn in revenue. Having used up all the spare cash in the business, they needed to do something to stay afloat. So, they needed a loan, and their SMSF looked like the best option, particularly as the banks weren’t lending during COVID.
“They took $200,000 from their SMSF and deposited it in their personal joint account. They didn’t do any loan documentation. They didn’t talk to their adviser about it. They didn’t do any trust minutes or resolutions. In addition to that, they hadn’t lodged a tax return since 2020.”
Mercer suggested one option was to simply lodge the tax returns and put a loan agreement in place so it’s not early release, and just move on.
But Dallas wasn’t having any of that, saying it’s obvious a number of potential or actual breaches have occurred.
“We’ve got issues such as early release, loans to members, financial assistance, inhouse asset problems and the non-lodgement of returns. We’ve got a whole lot of breaches.”
One choice for Chester and Marsha was to simply forget about it – to sweep it under the carpet. But that’s not a good option because the ATO has high detection capabilities. Another is to wind-up the fund and hope that nothing gets discovered. Or they can fix it by throwing themselves on the mercy of the ATO.
Mercer and Dallas said the “natural reaction” of many trustees was not to tell anyone because essentially what they were doing was “dobbing” themselves in.
But the question trustees must ask themselves is how will the ATO react if it later discovers the breaches – and the odds are the taxman will find them.
But the ATO doesn’t want it to go down this path, realising that it can’t oversee every SMSF transaction. Encouraging trustees to come forward is the preferred option.
“So, in our experience, the ATO usually gives concessions in the form of reduced administrative penalties. That’s usually what we see,” they said.
“Trustees also get to control the narrative. For Chester and Marsha, they can explain how they really had a hard time during COVID and really needed some money. Now we’re coming to you with a commitment to fix all these issues.”
Mercer and Dallas asked the audience to imagine the opposite scenario.
“Let’s just say Chester and Marsha did nothing for another three years. Now we’re seven years down the track. The ATO will pick up on the fund eventually for non-lodgement of returns and discover there’s a $200,000 withdrawal from the fund with no explanation whatsoever.
“The ATO immediately views that as early release and an attempt to cover up or stop the discovery of the early release. That’s just the ATO’s default position – and Chester and Marsha will pay a much heavier price.”
