What Happens If You Fail To Lodge Your SMSF Tax Return On Time?
If you fail to lodge your SMSF Tax Return, also called the SMSF Annual Return or SAR, the compliance status of your fund will be changed potentially making you liable for higher tax rates and penalties.
To ensure you meet your lodgement deadlines, we’ve compiled a list of key facts and dates you need to know to help you fully understand your obligations of running a compliant self-managed super fund.
What Is A SAR?
The SAR – SMSF Annual Return – is the tax return trustees need to lodge on behalf of their SMSF, just like any other tax-paying entity. The SAR can only be lodged once your SMSF has completed its annual audit and been deemed compliant by an accredited, independent party.
Your SMSF tax return is far more complex than a personal or even business return as the ATO imposes a great deal of surveillance and regulations on the self-managed super space. As such enlisting the services of a specialist SMSF Accountant can take the hassle out of this process and help you avoid unnecessary penalties.
Need help with your SMSF Tax Return?
There are a number of key dates to remember for your SMSF Tax Return:
This is the lodgement date for all self-preparers and SMSFs that have previously been penalised for non-lodgement.
This date applies for all first time SMSF tax return lodgements unless advised otherwise by the ATO. Newly established funds that were reviewed at registration will have a cut off of 31st October.
SMSF trustees utilising the services of an SMSF accountant will have an extended lodgement deadline of 15th May. This is also the lodgement date for funds that received a tax refund last reporting period.
Consequences of Non-Compliance
The consequences of failing to lodge your SAR on time range from one-off financial penalties to having your SMSF assets frozen or even being disqualified as a trustee.
The severity of the penalty you may incur relates to how late your lodgement becomes and also the significance of your non-compliant activity.
Let’s take a look at some of the major penalties in more detail.
Failure to Lodge Penalty
A Failure to Lodge penalty, or FTL, is a $222 fine that is incurred every 28 days your SAR is late. A total of 5 penalty units can be incurred, meaning that funds could be liable for up to $1100 in FTLs, depending on how late the SAR lodgement is made. Unlike many expenses associated with SMSFs, a FTL penalty is not deductible.
In addition to FTLs, administrative penalties may also apply to trustees or directors who go against the regulations set by the Superannuation Industry (Supervision) Act 1993.
One of the key requirements of this is Subsection 35B(1), which states that trustees are responsible for the preparation of accounts and statements. As such, failure to lodge a SAR on time contravenes this stipulation.
Like FTLs, penalties of this kind are also delivered as units costing $222. In the case of unprepared SARs, trustees can be hit with an administrative penalty of 10 units, or $2,200 per trustee.
Administrative penalties cannot be paid from the SMSF and are levied for each trustee. This means that individual trustees will each receive a penalty, whereas corporate trustees will just bear a single infringement. So, in a case of SMSFs with four individual trustees, the total fine for this incident would be $8,800.
Super Fund Status
As noted on the ATO website, failure to lodge your SAR on time, or being more than 2 weeks late, can put your fund at risk of having the compliance status changed to ‘regulation details removed’ on the Super Fund Lookup Website.
If this happens, your SMSF will be unable to receive payments from your employers or rollover funds from additional accounts. Should your employer wish to pay their super guarantee to you when your SMSF is in this stage, they would need to do so into an alternative fund.
Non-compliant funds are also ineligible to receive the concessional tax rate of 15% and are instead taxed at the highest marginal threshold of 45%.
To have this status amended, you will need to lodge your SMSF tax return as soon as possible and your fund will return to being compliant on the first business day of the next month. So, if you lodge an overdue SAR in early December, you will not return to compliance until the beginning of January.
In addition to monetary fines, the ATO also has a range of other consequences that could apply to SMSFs who do not adhere to the highly regulated superannuation laws.
These penalties might include:
- Direction to seek further SMSF education
- Enforceable undertaking
- Trustee disqualification
- Civil charges
- Forced SMSF wind up
- Frozen SMSF assets
Can I Request an Extension?
It is possible to defer your SMSF Annual Return but only in extenuating circumstances. Should trustees be experiencing severe illness or impacted by local disasters, for example, they may be able to apply for a deferment through their tax representative.
Individuals preparing their own SMSF tax returns are able to seek an extension, however it is far less likely the ATO will grant their request.
Submitting your SAR on time is a critical component of being a trustee of a self-managed super fund. While you can save costs by preparing the return yourself, appointing a dedicated SMSF tax accountant will not only afford you a later lodgement deadline, but help ensure that you meet other compliance requirements to avoid a range of penalties.
However, you should remember that even if you enlist services to oversee the administration of your SMSF, you as the trustee are ultimately responsible for its management. Failure to meet your legal obligations, including timely lodgement of your annual returns, could not only cost you thousands in penalty fees, but see your fund closed and standing as an SMSF trustee disqualified.
If you have any concerns about meeting the demands of managing your super fund, seek support from a professional.
Do you want to learn more about our SMSF Accounting Services?