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  • ATO action to reduce the gap

    The concessionary tax environment for small super funds means that the tax consequence of non-compliance due to errors or deliberate acts is less than in other populations.

    Yet we still focus on ensuring super funds pay the right amount of tax. To achieve this we have adopted a multi-facetted approach, which includes:

    • providing tools and resources to assist funds to meet their obligations
    • mitigating risk with a rigorous and systematic approach to identifying and responding to regulatory risk
    • actively engaging with and seeking feedback from stakeholders in the small super fund environment.

    Super fund life cycle

    Our approach to managing the small super fund tax gap recognises key activities that occur during the three inherent phases of a fund's life cycle:

    • establishment phase – initial setup and investment activities
    • accumulation phase – wealth building activities
    • retirement phase – starting an income stream during retirement.

    We have undertaken a targeted communication and education strategy to ensure trustees, advisors and industry professionals are aware of their obligations during each of these phases.

    We use a number of strategies to identify both potential and actual non-compliance. The first line of defence is our secure front-door process where each new application is assessed. This is to ensure individuals establish their small super fund for the sole purpose of providing them with retirement benefits.

    We check that only individuals with a genuine intent of establishing and maintaining a compliant super fund enter the system. In this way, we seek to prevent the income tax gap arising from illegal early release and promoter activity.

    During the life of the fund, we make use of intelligence gathered from the annual audit process undertaken by SMSF approved auditors. Where non-compliance is reported, we apply tailored correctional action according to the severity of the issue.

    We also have specific strategies looking at compliance risks of high value funds, non-lodging funds and those looking to inappropriately access the concessionally taxed environment through profit-shifting arrangements.

    The risk strategies we adopt to minimise the tax gap are reviewed and validated bi-annually to reflect the changing nature of compliance risk. Our areas of focus include:

    • reviewing and validating the competency of the work completed by some of our highest volume approved auditors
    • reviewing our highest value funds to ensure that inappropriate wealth accumulation strategies haven't been used to inflate investment returns within the concessional taxed environment
    • prosecuting promoters of illegal early release schemes who target vulnerable trustees
    • encouraging trustees of funds who haven't lodged to bring their lodgments up to date, or to cancel their registration and cease operating as a small super fund
    • applying differentiated treatment to encourage self-correction of identified non-compliance. Treatments include enforceable undertakings, direction to educate, direction to rectify, administrative penalties, notice of non-compliance, disqualification of individuals and civil or criminal prosecution.

    Figure 2 shows the population of small super funds that lodge, compared to those that are registered, illustrating the growing number of funds that are registered but yet to lodge.

    Figure 2: Population of small super funds that are lodged and registered, 2013 to 2018

    Figure 2: This graph is a pictorial representation of the population of small super funds that are registered, and funds that lodge returns for the period 2012–13 to 2017–18. Overall, it displays the growing differential in the number of funds that are registered, versus the number of funds that lodge returns. The first trend shows the number of registered funds starting at approximately 510,000 funds in 2013–14 to approximately 570,000 funds in 2017–18. The trend representing funds that lodged returns goes from approximately 490,000 funds in 2012–13 to 500,000 registered funds in 2016–17. The find trend show the net difference in these two populations starting at approximately 20,000 funds in 2013–14 to approximately 65,000 funds in 2016–17.

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      Last modified: 17 Oct 2019QC 56336