Let’s assume you suspect you’ve done something wrong in your SMSF.  For example, you haven’t met the minimum pension payments or your fund has bought a residential property you personally owned.

How do you avoid getting into trouble with the ATO and facing various penalties?

There’s no clear way of getting out of these problems. You need to feel your way through them, depending on who knows about the problem. Let’s go through five different scenarios.

1. The ATO and my SMSF auditor don’t know about the mistake yet

As you know, each year your super fund’s accounts and financial records have to be checked by an auditor. They look to make sure your fund has been run properly from a financial accounting perspective and that you have complied with various superannuation laws.

It’s likely your problems will be found by the auditor, once they check your fund.

If the auditor finds the problem, without your prior warning, then they will tell you about it and ask you how you intend to fix it. When this occurs, you have a tight timeframe to respond and to fully carry out your solution.

In some cases, they must tell the ATO about the problem. When they report these breaches, they must identify if the problems have been fixed.

So here’s a tip – if you’ve done something wrong and your auditor doesn’t know about it, then contact them and explain the problem and ask for their advice about fixing it.

It is much better for the ATO to be told that you breached a specific super rule but the problem has been fixed rather than have the ATO approach you about an unsolved error.

2. My auditor found the problem before I told them

As noted above, the auditor will ask you to tell them how you intend to fix the problem and by what time. The auditor will let you know if they have to report you to the ATO.

3. The ATO has made contact after your auditor submitted a breach notice

If your auditor sent the ATO a super law breach notice, then the ATO might contact you if it has received a number of breach notices about your fund (even if you’ve fixed all the problems up) or if the breach is particularly serious or if you haven’t fixed the problem before the auditor has to report you to the Tax Office.

When the ATO contacts you, it’s best to be proactive and sensible. This doesn’t mean you need to be a wimp and accept whatever is ditched up to you.

4. The ATO finds a problem after randomly selecting your fund for an audit

In this case you will have to deal with the ATO as best you can. If the issue is fairly minor, then hopefully the issue can be sorted out without too many problems.

If the ATO finds a significant problem that wasn’t reported to them beforehand, then you will need to be prepared to work hard. Typically, you should tell the ATO that you want to fix the problems and want to avoid making further errors. You need to show them you’re serious and not a paid up member of the Wild West brigade. Again, this doesn’t mean you just accept whatever the ATO demands, but you need to use your commonsense.

5. You’re not happy with what the ATO decides

Sometimes, the ATO has to decide what penalties to impose on you or your super fund. If you think its decision is over the top, then the ideal attitude is to take advice about the best course of action because there are often several different ways to proceed. Each route has its advantages and disadvantages and before acting, you need to carefully weigh up the options.

Typically, the process begins by you asking the Tax Office to review its original decision. If you’re still unhappy once that review has been completed, then you can object to the Administrative Appeals Tribunal or the Courts.  At this stage, some people use their State or Territory Court, while others prefer to use the Federal Court system.

Most disputes before the AAT are settled before an independent hearing and judgement takes place.

Finally, some tips for fixing problems:

1. Be proactive and helpful.
2. Be prompt and efficient.
3. Be humble.
4. Don’t be belligerent or take you time.
5. Don’t be difficult.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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• James Dunn – The value to be found in mining services
• Staff Reporter – Buy, Sell, Hold – what the brokers say
• Ron Bewley – Know your objectives when building a portfolio
• Question of the week – SMSF versus industry funds