The consequences of outstanding SMSF annual returns

A self-managed superannuation fund (SMSF) can offer potential advantages for those with the time and interest in operating one, but there are some serious pitfalls to watch out for.

Oct 30, 2023, updated Oct 30, 2023

An SMSF can give you more control over your investments and tax outcomes, and it can also provide access to some investments that are unavailable to regular (APRA-regulated) super funds, according to The New Daily’s super expert Craig Sankey.

But you need to be aware of the risks, the costs and the responsibility you are taking on when opening a SMSF, as you are not only a member of the fund, but the trustee in most cases as well.

“Although you can seek professional help from advisers, auditors and accountants, you are personally liable for the fund’s decisions,” Sankey warns.

The costs of running an SMSF can be a lot higher than people expect. According to an ATO report in 2019, the average annual operating cost of running an SMSF was $6450, and the median cost was $4069.

On top of these costs could be a hefty penalty for not lodging an income tax return on time, with one deadline looming tomorrow, according to Sam Myers, Senior Accountant, Superannuation at BDO.

Failing to lodge a self-managed superannuation fund (SMSF) income tax return with the Australian Taxation Office (ATO) before the lodgement deadline can have significant consequences for trustees and their SMSFs.

Due dates

Your SMSF tax return due date will vary on your situation:

Financial penalties

The most immediate consequence of lodging an SMSF income tax return late is the imposition of failure to lodge (FTL) penalties.

The ATO calculates the FTL penalty for an SMSF at the rate of one penalty unit for each period of 28 days that the income tax return is overdue, up to a maximum of five penalty units.

From 1 July 2023 onwards, a penalty unit amount applied is, $313.00, this means that a maximum of $1,565.00 can be applied for failure to lodge penalties per overdue income tax return.

Change of Super Fund Lookup status

Super Fund Lookup is the ATO’s register of SMSF’s current compliance statuses, and can be used by employers to determine if an SMSF is eligible to receive contributions.

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When an SMSF income tax return is two weeks overdue, the compliance status of an SMSF will be changed to “regulatory details removed” and the SMSF will be unable to:

  • Receive or make rollovers from/to other superannuation accounts; or
  • Receive employer concessional contributions (superannuation guarantee and/or salary sacrifice).

Once the SMSF’s outstanding income tax returns are lodged with the ATO, the SMSF’s Super Fund Lookup status will update on the first day or the fifteenth day of the following month.

Other consequences

In addition to the above penalties, there are further sanctions the ATO can apply, including:

  • Enforceable undertaking
  • Rectification direction
  • Administrative penalties
  • SMSF deemed non-compliant, this results in the SMSF tax rate being the highest marginal rather than the concessional 15 per cent tax rate
  • Disqualification of a trustee
  • Civil and criminal penalties
  • Freezing SMSF assets.

How we can help

Catching up can be challenging once an SMSF falls behind on income tax return lodgements.

This can be a significant administrative burden for Trustees and may require professional assistance when engaging with the ATO.

BDO’s superannuation team has a great track record of successful outcomes when engaging with the ATO in compliance issues and rectifying overdue income tax return lodgements.

If you have any questions regarding outstanding returns or compliance issues, please contact your local BDO adviser.

The information contained in this publication is purely factual in nature and does not take into account your personal objectives, financial situation or needs. It is provided as an information service only and does not constitute financial product or other professional advice and should not be relied upon as such. Before making any investment or financial decisions you should consider your particular objectives, and financial circumstance or needs. Where information relates to a particular financial product you should obtain and consider the relevant Product Disclosure Statement and obtain advice from a financial adviser before making any decision. If you do require financial advice, please contact the relevant BDO member firms in Australia who will be able to assist you in their capacity as an Australian Financial Services licensee. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not give any warranty as to the accuracy, reliability or completeness of information contained in this publication nor do they accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it, except in so far as any liability under statute cannot be excluded.
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