For many SMSF auditors, the audit season often brings a frustrating trend: a significant number of late lodgements. This isn’t just an inconvenience; it triggers a chain of events with serious consequences for both trustees and the professionals who support them.
The ripple effect begins with the ATO’s enforcement action. A fund with an overdue return may have its details removed from the Super Fund Lookup. This seemingly small change can halt a trustee’s plans in their tracks, preventing them from refinancing a Limited Recourse Borrowing Arrangement (LRBA) or rolling over funds from a retail super fund.
To make matters worse, audit files for these late lodgements are often missing critical documentation, leading to further delays. While an auditor can qualify the report and notify the ATO, this is an avenue many accountants are reluctant to take. As a result, valuable time is lost trying to chase down information that may have been misplaced or dismissed as unimportant.
The Three Major Issues Behind Late Lodgements
From my experience, I’ve concluded there are three primary reasons trustees fall behind.
- Misguided Beginnings. Some trustees enter the SMSF world after receiving advice from “one-stop shops” where the primary motivation is a sales commission, not the suitability of the fund for the trustee. This leaves them ill-equipped to handle the responsibilities and often without a dedicated professional to guide them.
- Lack of Engagement. A successful SMSF relies on a proactive and engaged trustee. A lack of attention to record-keeping and a general apathy toward their responsibilities often leads to a frantic scramble for information at year-end, which creates significant delays and audit risks.
- Insufficient Education. The responsibility of an SMSF trustee is substantial. Without a clear understanding of what is involved in running and managing the fund—from meticulous record-keeping to understanding complex compliance rules—trustees can quickly find themselves overwhelmed and non-compliant.
A System Under Strain
In the face of these challenges, a great deal of inefficiency is created for all parties. Trustees can end up blaming the accountant and auditor and leaving, only to repeat the cycle elsewhere. While it’s important to state that most SMSF trustees are engaged and compliant, there are enough struggling trustees to highlight that for some, the system is not working as intended.
Have you encountered these issues? What do you believe is the biggest challenge for new SMSF trustees?