Mrs Slattery says: “All the evidence suggests that the ATO does an excellent job regulating this sector, and calls for SMSFs to come under the umbrella of the Australian Prudential Regulation Authority (APRA) are both mischievous and illogical. 

“The claim is that SMSF sector is under-regulated; nothing could be further from the truth.” 

The ATO has always regulated the taxation of SMSFs and APRA-regulated funds, and has regulated the administration and operation of SMSFs since 1999. 

Under the Labor Government a few years ago, the ATO was handed prudential powers by APRA to regulate the auditors, actuaries and trustees of SMSFs. The ATO’s powers also include regulating fraud and theft, which, as APRA noted in the Trio inquiry, it doesn’t have regulatory powers over. 

Mrs Slattery says: “The fact remains that APRA does not have the resources to oversee nearly 500,000 SMSFs, with its audit program simply not structured to handle small funds. By contrast, the ATO has been able to build the resources and the expertise which is why SMSFs were transferred from APRA to the ATO in 1999.” 

Mrs Slattery says the ATO’s preparedness to engage and consult with the SMSF sector has been excellent and there has never been any evidence to show that the ATO was failing in its role, “so we at SPAA cannot understand why there is continuing sniping at the ATO. 

“There are never any facts or figures to demonstrate the ATO is falling down on the job. Just the claim that SMSFs are ‘lightly regulated’ and that APRA would be a more appropriate regulator. 

“The criticism ignores the fact that each fund has to be independently audited each year which means the performance of the trustees is constantly being reviewed and scrutinised. It really shows that the criticism is generally due to a lack of knowledge and understanding of the SMSF sector and the actual regulatory role that the ATO has.”

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The current penalty system for some breaches is cumbersome and out of step with the severity of the breach. The proposals, now in the public arena for consultation and due to take effect on 1 July 2013, have their origins in the Cooper Review that found that the ATO’s options were limited when it came to sanctioning SMSF trustees who failed to comply with the Act.

The SMSF Professionals’ Association of Australia (SPAA) CEO Andrea Slattery has welcomed the proposed legislative changes. “Under the current regime, the ATO has basically three options: the draconian move of making a fund non-compliant for tax purposes, applying to a court to impose civil penalties, or largely turning a blind eye.

“Clearly this situation was unsatisfactory. Making a fund non-compliant could have had the effect of halving the value of the assets – a harsh penalty in most instances – while applying to a court can be time-consuming with no guarantee about the outcome. At the same time trustees should not be able to think they can be non-compliant with impunity.”

Mrs Slattery says the proposed changes have the benefit of giving the ATO greater flexibility so that any penalty imposed is more in tune with the breach of the Act.

“Under the proposed legislation a trustee could face penalties of up to $6,600 for contravening certain aspects of the Act or regulations. “Another option open to the ATO is to require trustees to attend an SMSF educational course about their responsibilities, as well as directing trustees to undertake specified action to rectify a breach of the legislation.”

She says the decision to give the ATO the power to force trustees to attend an educational course was a “positive initiative”.

“It suggests to SPAA that many breaches of the Act are more by accident than design and that by giving trustees additional knowledge about how to comply with the Act is a sensible approach.

“The proposed changes also highlight the need for trustees to get professional advice as the ATO is unlikely to be as forgiving of breaches of the Act in a more flexible compliance regime; ignorance of the law will be no excuse.”

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