Rectification action in response to self-managed superannuation fund (SMSF) compliance breaches reported in an auditor contravention report (ACR) is the most prudent strategy for trustees to employ, according to an industry expert.
“It doesn’t become less of a breach, but it does do a few good things for you. First of all it’s just a practical thing. It reduces the chance the fund will be singled out for further attention by the ATO (Australian Taxation Office),” Heffron principal Meg Heffron told delegates at the firm’s 2011 Advanced SMSF Training Day.
“Also, one of the tests on the ACR is a question asking whether all of the breaches have been rectified. The last thing you want is lack of rectification to prompt further reporting.
“Lastly, it shows willing. The reason showing willing is important is because with all of the various things the ATO do in these situations they have choices all along the way. Showing willing is useful because it is one of the things that will influence the choices the ATO makes when it is exercising its powers.”
However, Heffron was quick to point out rectification did not mean covering up the breach or trying to deny it ever happened.
“It’s doing something new now to as far as possible put the fund back to where it would have been if the breach had never happened,” she said.
She also said trustees and advisers needed to be aware the rectification action could sometimes lead to other compliance problems.
“For example, when somebody pays money out of a super fund and our first instinct is to pay it back with interest, and this may be a perfectly adequate rectification, but there is another risk that goes with it. The payment could be considered a contribution that could trigger a breach of the caps and lead to massive tax liability down the track,” she said.
