ATO to crack down on loans from DIY super funds

The Australian Taxation Office will begin to crack down on loans made from self-managed superannuation funds, it was revealed at an industry conference yesterday.

Commissioner Michael D’Ascenzo told the Self-Managed Superannuation Funds Professionals Association of Australia conference there has been increased interest in DIY funds, with the total number growing to 416,000 last year.

But he also said related-party loans are still being made, often from these funds to struggling businesses, and the ATO will begin to crack down on these activities.

“Despite the fact that it is a contravention, there are many loans that are made to members or relatives. Often this is used to prop up personal business operations by providing additional cashflow.”

“It is therefore a concern that 19% of all contraventions we have had reported to us by approved auditors are for this reason. While some of these loans may be made due to a lack of understanding of the rules, it is clear that there are a small, but significant, number of trustees, and may be even some advisers, who are prepared to openly flout the law.”

Dan Butler from DBA Lawyers says current laws dictate self-managed funds cannot provide either direct or indirect financial assistance to a member, or relatives of members.

“Let’s say members of a super fund also run a business and they are feeling short of cash. Rather than going off to the bank, they’ll just get the money from the fund. They’re basically raiding the cookie tin. But if this loan is to an individual member or relative, it’s a very serious breach of the law.”

“This action is prohibited because a lot of people can’t help themselves, and they can lose compliance statements and not make repayments. It’s attractive though; think about the global financial crisis. Many people might be stressed with school fees, and then they’ve got their super fund flushed with cash like it’s the Garden of Eden.”

D’Ascenzo said funds giving out these loans are putting retirement savings at risk, and the ATO will use the full weight of the law when it detects “deliberate and blatant contraventions”.

“Despite reminders from us, some SMSFs have still not lodged their annual returns yet we know from other data that they are active and have assets, if this continues we will be forced to take strong action, including making them non-complying which will lead to a default assessment being raised.”

Meanwhile, Butler also says the ATO will begin to feel the heat from industry bodies over high taxes on excess contributions into super funds, after the commissioner apparently failed to address concerns yesterday.

“One of the things Michael talked about was excess contributions. There is a real regime going on with this, but the ATO is saying this is a system imposed by the Government and that their discretion is so tight they cannot do anything… their hands are tied.”

“I spoke to Michael after he spoke, and I pointed out that he hadn’t addressed this. But he says his hands are tied. However, I represent a lot of people in the industry, and I said to him he would be hearing from industry bodies about this.”