17/04/2024 6:42 AM


business knows no time

Trustees Penalties for mistakes identified during SMSF audits

Guide to SMSF audits

There can be various penalties that might arise due to mistakes identified during SMSF audits. To make your fund compliant you should know what are the penalties that are charged and what are those common mistakes that are generally found by the SMSF auditor during the SMSF audit? If you are finding answers to these two questions then you have landed on the right page. 

Common mistakes identified during the SMSF audit 

Utilizing money from SMSF’s bank account for personal expenses 

One of the very common mistakes and apparently a major one is SMSF members or trustees using money from the SMSF’s bank account to pay their personal or business expenses. Many times, members or trustees unknowingly make this mistake, since they are unaware that it is not allowed. 

Thus, make sure that a separate bank account is maintained for SMSF and it is not used to pay out personal or business expenses or for helping yourself or relatives. If you take out money from SMSF before it is permitted, then it will be counted as a mistake in your super fund audit.  

Investment asset not per the investment strategy 

Investments of SMSF should be according to the investment strategy of the fund. Also, the strategy should be reviewed regularly so that the investments keep in line with the strategy. When a new asset class is purchased such as international shares or commercial property, and it is not allowed as per the strategy, then an update is required in the strategy or else penalties would be imposed. 

Valuation of fund’s asset not as per the market value 

It is required that the fund’s assets are correctly valued at the market value, especially when a member is in the pension phase. The reason is that the market value of the assets would impact the minimum pension requirement for the upcoming years. An incorrect valuation could make the SMSF liable for penalties. 

Investment not held in the fund’s name 

All the fund’s investments should be in the name of trustees only in their capacity of the trustees of the SMSF. This means that the fund’s investments should not be in the personal name of trustees or members. Therefore, the personal investments of the trustees or members should be kept separate from the investments of the fund. If the fund trustees make any such mistake then they should rectify it as soon as possible.  

Insufficient record-keeping for the fund 

Another common mistake that trustees make is that they do not keep the records of the fund documents for sufficient period. As per SMSF laws, records for some of the fund’s documents are to be kept for at least 5 years such as: 

  • accounting records, 
  • financial statements, 
  • SMSF annual returns filed with ATO, 
  • copies of other statements filed with ATO 

Further, some records are to be kept for 10 years such as: 

  • trustees’ minutes of meetings, 
  • documents for changes in trustees 
  • members’ acceptance to be appointed as trustee 
  • trustee declaration 

Inability to maintain these records may become the cause of penalties for the SMSF and become a cause of mistake during superannuation audit. 

So, these are some of the most common mistakes that are found during SMSF audits and which may lead to penalties. Let’s understand how ATO reacts to such mistakes or breaches. 

How ATO deals with compliance breaches? 

ATO’s action on compliance breaches by SMSF depends upon some circumstances such as: 

  • severity of the breach, 
  • behaviour of the trustees, 
  • tax consequences due to the breach. 

When ATO concludes that an SMSF is non-complaint then the ATO issues a non-compliance notice to the SMSF trustees. This results in the cancelation of concessional tax treatment, even for the previous years. 

Regulatory Penalties 

ATO can impose various regulatory penalties in case of non-compliance like: 

  • Suspension or removal of trustees, 
  • Disqualification of trustees from running an SMSF, 
  • Administrative penalties on trustees, 
  • Freezing of the fund’s assets, 
  • Fines, as well as imprisonment for the trustees. 

To avoid such penalties, you need SMSF auditing services from experienced SMSF auditors. One of the experienced auditors in Perth is Auditax that can audit your superfund and make sure your fund can avoid penalties by providing you proper guidance. Auditax is one of the approved SMSF auditors which provides its SMSF audit services to a number of SMSFs in Perth.