ATO action to reduce the small super funds tax gap

Ensuring super funds pay the right tax

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

However, we still focus on ensuring super funds pay the right amount of tax. We have a multi-faceted approach which includes:

• providing tools and resources to assist funds to understand and meet their obligations
• mitigating risk with a targeted and tailored approach to identify and respond to risk
• actively engaging with and seeking feedback from small super fund stakeholders.

Super fund life cycle

Our approach to managing this tax gap recognises key activities that occur during the 3 inherent phases of a fund's life cycle:

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

We undertake targeted communication and education strategies. This ensures trustees, advisers and industry professionals are aware of their obligations and understand our compliance stance during each phase.

We use several strategies to identify both potential and actual non-compliance. The first line of defence is our new registrant program where each new application is risk assessed. This looks to ensure individuals establish their small super fund for the sole purpose of providing them with retirement benefits.

Self-managed super fund registrations

We are currently experiencing a significant increase in new self-managed super fund (SMSF) registrations. The new registrant program checks that only eligible trustees enter the system and ensures new trustees or members are provided with education on their roles and responsibilities.

During the life of the fund, we use intelligence from the annual audit process and other sources undertaken by SMSF-approved auditors. Where non-compliance is reported or detected, we take a risk-based approach to applying tailored correctional action according to the severity of the issue.

We also have specific strategies for compliance risks of high value funds, non-lodging funds and those looking to inappropriately access concessional tax treatment through profit-shifting arrangements.

Our risk strategies are reviewed and validated annually to reflect the changing nature of compliance risk.

Table 2 shows the population of self-managed super funds that lodge, compared to those that are registered, over the period 2017–18 to 2022–23.

This data is displayed in Figure 2. It displays a persistent proportion of late lodgment for the more recent lodgement years.

Figure 2: Population of self-managed super funds that are registered and have lodged, 2017–18 to 2022–23