SMSFs face income tax problems

Misreporting on returns

By Darin Tyson-Chan
Wed 03 Dec 2008

The ATO has recognised misreporting on SMSF tax returns as a major concern.

An Australian Taxation Office (ATO) review of the compliance program for self managed superannuation funds (SMSFs) over the 2006/07 and 2007/08 periods has identified misreporting on income tax returns as a serious problem.

As a result of the finding the ATO will be increasing its tax compliance and communication work.

The regulator has also committed to improving its data collection and analysis techniques.

In a further effort to improve the situation, the ATO will conduct compliance procedures on nearly double the number of SMSFs for the current tax year. This means in 2008/09 1700 SMSF cases will be examined compared to 940 for the 2007/08 tax year.

Out of the total number of compliance cases, 600 will concentrate on exempt current pension income, 800 will be to verify the types of deductions that have been claimed, and 300 will focus on the declaration of exempt income.

SMSF specialists SuperCentral has identified issues the ATO might be concerned about regarding exempt current pension income.

The first is whether the SMSF has obtained an actuarial certificate that can legitimately apportion the income of the fund between current pension liabilities and other benefit liabilities.

The other is that if assets reported to have been segregated current pension assets, were properly segregated.

In reference to special income being declared, SuperCentral said the problem was likely to be about satisfying the sole purpose test. In particular, the ATO seems worried about the arm's-length basis of the investment activities conducted by SMSFs.

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