Almost 8% of the SMSF establishments in 2016/17 were flagged as high risk by the ATO and in need of further review.
In 2016/17 the ATO’s models identified around 7.6% of SMSF establishments as high risk, some 2,400 of the 31,000 new registrations, according to ATO Deputy Commissioner for Superannuation James O’Halloran.
“All new registrants are treated appropriate to the risk to their retirement savings based on an automated risk assessment. Where new registrants are considered high risk the SMSF is reviewed to determine suitability for registration as an SMSF,” O’Halloran said in his keynote speech at the recent SMSF Expo.
“From some 2,400 pre-registration checks we undertook last financial year, we withheld about 600 registrations and cancelled the ABNs of 573 after further review. By comparison, from 1 July to 31 December 2017 we cancelled the ABNs of 288 funds and placed restrictions on a further 200 funds.”
As part of a crack-down the ATO cancelled the ABNs of some 8,600 SMSFs in the September 2017 quarter.
O’Halloran said the ATO had to date this financial year disqualified 214 SMSF trustees, the majority of which for illegal early release and loans to members.
“Sixty-seven trustees came to our attention as part of our pre-SMSF registration checks and early intervention cases; another 50 were disqualified for unrectified contraventions reported through ACRs. The remaining 48 trustees were disqualified for allowing early access of benefits to members and providing loans to members.”
Eight SMSF trustees were disqualified for being involved in tax planning arrangements, including dividend stripping.
These figures appear on track to be lower than the figures for 2016/17, but this will depend on compliance action taken in the final quarter of the financial year.
“A more serious concern is that in the past 24 months we’ve progressed 61 dividend-stripping cases involving SMSFs. These arrangements are typically used to move large sums of money into the concessionally taxed super environment,” said O’Halloran.
“In some cases, trustees have been removed and trustees have agreed to roll their assets into an APRA-regulated fund. From an income tax perspective, trustees are being required to repay franking credits and forego the benefit of future franking credits.”