The ATO's Dana Fleming

The tax regulator’s SMSF lead said it will play hard ball with non-compliant SMSF trustees in the future after a three-year review found that three quarters of its breaches went unpunished, and the trustees that were punished failed to learn their lesson.

The ATO has “recalibrated” its approach to enforcement, said Dana Fleming, the assistant commissioner of the SMSF segment for the Australian Tax Office.

“Trustees should be aware that breaches of the law will attract a penalty,” she said

Speaking at the SMSF Association National Conference on the Gold Coast, Fleming said a review into its enforcement effectiveness revealed 75 per cent of administrative penalties had been fully remitted, meaning there was “no consequence for those trustees”.

Further, she explained, trustees “on the remedial pathway” were not taking their lesson to heart.

“What was most concerning… was that after we had taken our enforcement action a significant proportion of the SMSF subsequent compliance – measured by how well they were meeting their lodgement obligations going forward – was significantly below that of the general SMSF population,” Fleming continued. “Which means our enforcement action had been, in effect, ineffective.”

The findings led the ATO to believe that initial breaches were “symptomatic of a bigger problem”.

Fleming explained that the ATO’s previous stance was that full remission should be considered if the breach was being rectified. The policy, however, didn’t work.

“That’s what resulted in the 75 per cent being fully remitted,” she said.

Speaking to Professional Planner, Fleming said she hoped the new enforcement stance would see that figure drop to “at least” 10 per cent. “If you do something wrong you should pay for it,” she said.

An internal note on the new enforcement position was circulated at the ATO on April 19 last year, while a public note will be released this March.

The ATO’s new enforcement stance will be focus on three risk areas; illegal early releases, regulatory contravention and non-lodgement. The tax regulator will also turn a sharp eye to the top 100 largest SMSFs, Fleming said.

As part of its review the ATO also identified several key areas it needed to improve on including consistency, effectiveness and “improving trust, confidence and transparency”. The new focus on stronger enforcement was part of the effectiveness push.

“We’re trying to learn and improve,” she said.