Self Managed Superannuation Funds (SMSFs) are undoubtedly the most regulated entities within Australia, and with good reason. They are entitled to tax concessions of only paying 15% if they continue to comply with all those rules and regulations.
The tax office has guidelines in which it has to follow before it can actually deem a SMSF to be non-complying with those rules. They issued a Practice Statement (PS LA 2006/19) which sets out the administration guidelines the ATO staff must follow when reviewing any breaches made by trustees.
The first guideline they look into is the intention and behaviour of the trustees.
In recent cases of declaring SMSFs non-complying, the behaviour of the trustees was the main issue.
In the AAT case of Triway Superannuation Fund, the trustees were told by their advisors to cover up the withdrawal of all the money by one of the members who had a drug habit, for up to five years.
The burying your head in the sand method, hoping the problem will fix itself, or no-one will notice, is not the way to handle potential breaches of the superannuation regulations.
We have also come across issues in the preparation of year end financial statements for super funds, which left unattended, could have lead to the worst possible case for the trustees. The best way to deal with any possible breach is to face the issue head on.
Depending on the age of the members and the extent of the breach, there may be ways to solve any possible problems before they fester into something unsolvable.
The first step you should take is to speak with your superannuation compliance preparer. If they ever give you advice that you should do nothing, that's a sure sign you don't have the best advisor in your corner.
You need to have an advisor who will work with you to see if there is a way to address the breach first. If there is a way to rectify the breach, or to display the issue differently in the accounts, then you need to be upfront with having the breach fixed.
Preferably if the breach is fixed before it gets to an audit situation with the ATO, even though they must still investigate it, they may not go any further with any penalty action. If the breach has not been completely fixed, they may insist on having the trustees enter an enforceable undertaking giving the trustees time to fix the breach.
The main issue here is to not ignore the errors that you may have caused. Be upfront and insist on having the advisors get the issue out into the open as well. Sometimes it can be the advisor who doesn't know how to fix the problem and when they sit on the returns, not keeping up lodgements, they can make it worse for your fund.
After all, honesty is the best policy when it comes to keeping the SMSFs complying status, and confessing your sins takes a great weight off your shoulders.