We had heard the ATO is directly contacting SMSF trustees, often a telephone call with 'a few questions'.  It was also reported in the media last week, and after checking found the media had misreported the story (surprise!).

New laws from 1 July 2014 make SMSF trustees personally liable for fund breaches, including monetary penalties and even prosecution (we put details in a Newsletter a couple of months ago).

The ATO contacts on SMSF's are not random, we found they are a follow-up of reports issued by the auditors of the Fund, which must be lodged with the ATO.  The report may concern something that is a technical breach or it could even be a major failure of compliance, every breach is reportable.

The auditors we recommend have high professional standards and do not set out to fail anyone, and if they have concerns, they refer the matter back to us for comment or attention before completion of the audit.  I cannot recall one qualified report for our clients in the fast few years.  The auditors have supplied us with their Audit Programs and Guidelines, which we use to ensure that the financials, tax affairs and operations of the Fund do comply even before the auditor receives the records for audit.  Also, they are always available to us for advice or discussions.  We believe their fees are low and the value provided to clients is high.

So, why would the ATO call a trustee direct?  If the audit report is not qualified the ATO has no specific concerns, so the call may be checking on trustee activity, to understand the operations or investments of the Fund, or seeking information to develop policy in a particular area.

If you get a call, what should you do?

1.   Don't panic

It may be in relation to a concern outside the audit, and they're trying to understand how the Fund operates, without doing an audit.  Listen to the reason given for the call.

2.   Be nice

The ATO prefers to work with SMSF's to get solutions, not 'get you'.  Co-operation usually means a positive outcome and no escalation of action.

3.   Make sure you know what they expect you to know

That is, the Fund keeps proper records, separates SMSF records from personal or business accounts, has an investment strategy (grow assets or earn income to pay pensions), prepares tax returns and financial reports, has an annual audit, files all the records, keeps a Register and minutes decisions.  If the trustee doesn't know what is expected of him/her, the ATO may require them to undertake a Trustee education course (a sheer delight you don't need!).  Yes, we attend to a lot of these matters, but it is why we tell you what we are doing, even harp about trustee duties.

4.   Have a Plan

If the call is in response to a contravention report from the auditor (unlikely for our clients) know what is being done to fix the problem.  Read out our report or say what was done to fix it.  Telling the auditor you're too busy will only result in the escalation of the case.

5.   If you don't know

Suggest the ATO calls back in 48 hours.  Then call us and we'll see if we can deal with the ATO for you, or tell you what you need to know.

It is worth knowing what is going on in the background.  The ATO is not out to get trustees, but their job is to ensure compliance with the law.  We take what we do seriously, making sure things are as right as can be and hopefully avoid scrutiny for unintended breaches, or worse non-compliance (loans to members or others, non-approved investments, being in business, etc).