ATO crackdown on DIY super funds
THE taxman is getting tough on self-run super funds and knowing the rules is the only way to avoid getting burned.
THE Australian Taxation Office has launched a blitz on unlawful self-managed superannuation funds, with almost 100 funds shut down last year.
According to the latest ATO data, it made 99 self-managed funds non-compliant in 2009, compared with 24 the previous year and only five in 2007.
After a self-managed super fund is banned, the market value of assets can be taxed at up to 45 per cent, leaving members with little more than half their savings.
The rise in penalty activity is a result of a tougher line by the ATO, rather than a rise in dodgy DIY funds, says superannuation lawyer Bryce Figot of law firm DBA.
When a fund is tagged as non-compliant it loses its discounted tax benefits, is slugged with penalty interest charges and is hit with the highest marginal rate, going back many years in some cases to the first breach of the laws.
Mr Figot says the most common reason a DIY fund is shut down is because of loans to a member of the fund or a related person.
"Often mum and dad might have a small super fund and their business might be in trouble, so they decide to strip money out of the fund for use in the business,'' Mr Figot says.
"The auditor then accounts for the money as a loan to a related party and a contravention report has to be lodged with the ATO.''
Self-managed super fund industry group SPAA says the Australian Tax Office last year switched its role from education to enforcement.
"There's no doubt it has changed its focus to a more rigorous process of regulation,'' SPAA chief executive Andrea Slattery says.
"Last year the majority of the non-compliant funds involved loans to members, particularly where the trustees were either unwilling or unable to rectify or pay back the money.''
About 9000 self-managed funds were tagged by auditors last year. The 99 shutdowns represented less than 1 per cent, Ms Slattery says.
ATO data shows there are 411,000 self-managed super funds in Australia, holding almost $370 billion in assets.
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