26/11/2014

An auditor contravention report may never happen for your fund; but wouldn't it be nice to be prepared just in case?

Reportedly:
•    the odds of injury from shaving are 6,585 to 1;
•    the odds of drowning in a bathtub are 685,000 to 1;
•    the odds of getting a hole in one are 5,000 to 1; BUT  
•    the odds of your SMSF getting an Auditor Contravention Report (ACR) is only 53 to 1.

Although some things in life may never happen, sometimes the unexpected arrives - like contraventions of super law for an SMSF.  The secret is to be prepared and know who can help.  

Contraventions that have either been detected and reported to the ATO through an ACR or likely to be picked up next audit are scary at first, but can often be managed to minimise the detrimental affects.

11,000 ACR's were issued in the last financial year (2013-14) and with the new power of the ATO to impose penalties the need to address these issues, and address them promptly, is magnified.  The ATO has made it clear that super fund trustees identifying and actively addressing contraventions will be viewed favourably.

The regulator of SMSFs has advised that every ACR will be risk assessed by the ATO; either Low, Medium or High.

Low risk assessment means that the ATO is likely to deal with the contravention/s by a letter or phone call to the trustee.  This is intended to occur within 8 weeks of the ATO's receipt of the ACR from the fund's auditor.  

[Tip: Don't talk to the ATO if you've got an accountant or financial adviser who can do so for you.  Don't be like the client who told the ATO officer he had no idea about his super fund because his wife handled all that and then suddenly found himself disqualified as a trustee and their super fund removed from Super Fund Lookup.]

Medium risk assessment means that the ATO is likely to make a phone call to the trustee (not the financial adviser) in order to discuss the contravention/s. [Tip:  See the earlier tip and don't talk to the ATO until you're prepared.]

High risk assessment means that the SMSF is likely to receive a comprehensive/full audit in order to assess whether there are additional issues which may need to be addressed.

The ATO has advised that the breach is not the problem; a fund with an ACR is better off than one without when a contravention has occurred.

What the Trustee needs is a plan to identify all aspects of the contravention/s, consider appropriate courses of action and take those steps to address the breaches.  Notification to the ATO of how you intend to proceed is critical.

Breaches can be managed and the effect minimised in many different ways but it is important that you act quickly.  The worst thing to do is sit on the issue and hope it goes away.  Guess what – it won't.

Our experienced SMSF team at Townsends Business & Corporate Lawyers have helped many SMSF trustees and their advisers with contravention remedy plans and their implementation, and can assist in reducing the stress when dealing with contraventions in an SMSF. 

For more information regarding this article, please call Caroline Harley on (02) 8296 6222.