ATO View on breaches of the SMSF law

The ATO has historically taken a sensible approach where SMSFs have breached the law. The key points are disclosure and rectification. The auditor must disclose the breach and must also be able to show rectification. If everyone is back where they started and there is no misccief then the ATO seems to take a softline. Have a look at this extract from a recent ATO newsletter about a SMSF inadvertently borrowing:


Case Study - An SMSF Borrowing
Trustees of self managed superannuation funds must not borrow money or maintain an existing borrowing of money under the Superannuation Industry (Supervision) Act 1993 (SISA). There are a few exceptions to this rule and trustees should ensure that they understand these exceptions and do not operate outside of these.

Case study

A self managed superannuation fund had effected and maintained a borrowing. This borrowing did not meet any of the exceptions outlined in section 67 of the SISA.

As such the fund had a borrowing which had breached section 67 of the SISA.

The audit report prepared by the fund’s auditor for the year in question was qualified and an auditor contravention report was lodged.

No outstanding lodgments or other contraventions were identified.

Following discussion with their auditor, the trustees decided to make a full disclosure to the Tax Office. The Tax Office contacted the fund upon receipt of both the disclosure and contravention report. An undertaking was proposed by the trustees of the fund and accepted by the Tax Office. The terms of the undertaking were that the fund would repay the loan immediately with interest.

The trustees adhered to the terms.