25/09/2013

When breaches occur it's natural for your heart to skip a beat; the threat of a notice of non-compliance lives in the nightmares of many an SMSF trustee and adviser.  But remember that if you stay calm and focused it's the best way out of any jam.

The ATO has recently released their 2013 version of the Auditor Contravention Report (ACR) form (NAT 11299).

An ACR is used by the Fund's Auditor or Actuary to advise the ATO when a contravention is detected which meets the reporting criteria.  This criteria includes the Auditing and assurance standards along with the Auditor or Actuary's own personal professional judgement.

A contravention is either a prohibited act under the SIS Act or SIS Regulations ('SIS law') or an inaction that results in a failure by the Trustee to meet their obligations under the SIS law.

The contravention once detected is then sourced back to an event which is a positive action or failure to act by the Trustees.  You can report up to six separate events on the one ACR.

An example of an event which may involve more than one contravention is:

An SMSF borrows money that is used to purchase a home from a member (the loan is not a limited recourse borrowing arrangement and the home is not business real property).  This event results in a number of contraventions of the SIS Act including section 66 prohibition of acquiring asset from a related party and section 67 prohibition of borrowing.

When further information is requested to lodge the ACR it is important to keep in mind that the ATO:
•    may choose to take no further action if you can show that the contravention/s have been rectified
•    is likely to take into consideration the compliance history of the Fund, so if you come with a clear track record this will be in your favour
•    will look at how the Trustees have dealt with the contravention ie. taking steps to rectify and taking steps to prevent further contraventions and any mitigating factors.

Recent statistics showed that among the top 10 reported contraventions by SMSFs were:
•    loans or financial assistance to members
•    borrowings
•    in-house assets
•    administrative-type contraventions
•    investment at arms length and
•    acquisition from related parties.

It is important to remember prompt and well advised actions to rectify in a timely manner are important and can make a difference when reporting to the ATO.  

For further information or assistance, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.