Section 52(2)(d) of the Superannuation Industry (Supervision) Act 1993 (SISA) requires the trustees to keep the fund money separate from money of other parties.
The most common contravention of this requirement continues to be withdrawals from and deposits to the fund's bank account made in error. The trustees tell us that no harm was meant, that the transactions occurred inadvertently (the wrong chequebook was picked up), that the fund is in no better or worse position if such withdrawals and deposits were promptly rectified.
However, as understanding as any auditor may be towards such errors there are times where the auditor has no choice but to qualify the audit report and lodge a contravention report with the ATO. This is because the contravention reporting guidelines dictate that the auditor must report to the ATO any contravention that is:
• more than $30,000 (more than $2,000 for a fund which has been in operation for less than 15 months), or
• more than 5% of total fund assets, or
• a repeat of a contravention that occurred in prior years.
In addition to a breach of section 52(2)(d) of SISA the ATO may also view a withdrawal in error as a loan to the fund member in breach of section 65 of SISA and a deposit in error as borrowing by the fund in breach of section 67 of SISA. The ATO is likely to look at the intention of trustees and the promptness of correction of such errors.
Deposits in error may also have tax consequences for the fund. Since the introduction of the contribution limits several years ago, the ATO has been more vigilant of amounts deposited into the fund which were originally intended to be contributions. When the trustees realised these contributions would breach the limits, such amounts were withdrawn. The trustees then claimed that the original deposit was made in error. The ATO has, on numerous occasions, disallowed such withdrawals, treated the original deposits as contributions and imposed excess contributions tax.
The ATO may also view a withdrawal in error as a benefit payment and the repayment of the monies to the fund as a contribution.
We all know tax and compliance audits by the ATO can be very costly due to professional fees incurred and potential penalties imposed by the Tax Office. In order to avoid the headache it is a good idea to be extra careful when drawing up cheques or making Internet Banking transfers – make sure you are using the correct accounts!