SMSF tax return: Avoid the annual angst
Individuals and self-managed superannuation fund (SMSF) trustees alike are embroiled in a race to finish their annual returns, but for the latter the race is one that is more difficult and involved.
As we explained in our last edition, SMSFs have to appoint an ‘approved auditor’ at least 30 days before the due date of the annual return. The annual return cannot be lodged until the audit report has been finalised, as information from the audit report is required to complete the regulatory information in the return.
The annual return deadline for SMSFs is October 31 (except for new entrants or funds that have outstanding previous year returns). Newly registered SMSFs have to lodge by February 28 next year.
It is crucial SMSF audits are completed and annual returns are lodged on time as the Tax Office is homing in on three major areas in its compliance crackdown this year:
• non or late lodgements
• compliance breaches without an auditor contravention report, and
• unrectified auditor contravention reports.
Of all these breaches, the Tax Office reiterates the failure to lodge an annual return is the most prevalent and an offence it takes a hard line on.
The good news is SMSFs and trustees have only one return to complete as the Tax Office has merged the fund income tax and regulatory return with the member contributions statement to produce a single annual return. All SMSFs need to lodge an annual return each year in order to:
- report income tax
- report superannuation regulatory information
- report member contributions, and
- pay the supervisory levy.
Each piece of information in the annual return is inter-related – changing one label on the form is likely to require labels in other sections of the form to be amended too. As a result, it is advised that SMSF trustees provide their tax agents with all the necessary information required as the form must be completed in full, that is, not in parts.
The supervisory levy (which increased from $180 to $200 effective from July 1, 2011) will be included in the notice of assessment, and is due to be paid by the date stated. The levy needs to be paid even when a fund is in pension phase – that is, the trustees have retired and the fund is currently paying benefits.
The legal maximum number of members in an SMSF is four. All members must be included, even where no contributions were received for a member during the income year. You will also need to report members who have left the fund during that financial year if they were paid a benefit in that year.
In the annual return, the Tax Office expects answers to some ongoing disclosure questions about the SMSF’s regulatory compliance – some of which may have been raised during the SMSF audit. The questions will include whether:
- the SMSF had/has financial involvement with related parties
- investments have been undertaken on an arm’s length basis
- the SMSF has allowed members access to assets and money before retirement
- the SMSF members has/had direct access to collectables such as art or wine held by the fund
- the SMSF has engaged in activities of selling goods and/or services
- all assets are appropriately secured through documentation as owned by the SMSF
• all investments have been revalued to current market value
• all assets were purchased and sold at a fair market value
• all SMSF investments – such as bank accounts, shares, unit trusts – are appropriately registered in the name of the SMSF trustees
• SMSF assets and personal assets have been kept separate
• superannuation contributions have adhered to the concessional and non-concessional caps
• non-cash contributions (known as ‘in-specie’ contributions) have been made to the SMSF
• the trustees have paid themselves for their services
• any of the fund’s trustees have become disqualified during the year
• the relevant administrative obligations have been fulfilled, and
• the approved auditor has provided services other than auditing the fund to the SMSF
Trustees must disclose this information each year, and failing to answer may result in the return not being accepted by the Tax Office, and could even render a trustee liable for penalties that relate to making false or misleading statements.
In fact, expanded administrative penalties apply to SMSFs. The penalties apply for:
• failing to lodge returns on time
• providing false or misleading statements
• failing to keep and retain records
• failing to advise of a change of trustee, or other changes to the fund.
Failure to lodge an SMSF annual return by the due date can result in administrative penalties and the loss of an SMSF’s tax concessions.
If your fund is newly registered but has not begun operating, and you tell the Tax Office in writing, you may not need to lodge an annual return.
Trustees may not need to lodge a return in the first year, or pay the supervisory levy of $200, if the SMSF:
• was registered late in the financial year (April, May or June)
• was not operating by June 30, and
• had not received contributions or rollover amounts by June 30.
The regulations pertaining to SMSFs are complex and can be daunting so please liaise with this office in regard to your SMSF’s annual return.