When is an SMSF Return Not Necessary?

An SMSF must lodge an annual return each year from its first year. However, there may be situations when a fund may be established with no assets or activity when it is first registered with the ATO. An SMSF may have obtained an SMSF deed, registered the fund with the ATO, and been granted an ABN. According to the ATO’s records, the fund has been established. But here is the twist: legally, an SMSF does not exist until it holds assets on behalf of the members, who are the fund’s beneficiaries. The ATO will not accept the lodgement of an annual return with nil assets unless the fund is being wound up and closed. To allow the fund to continue in its first year, it can lodge a Return Not Necessary (RNN) declaration.

What is included in an SMSF’s annual return?

The fund’s annual return includes three core reporting requirements:

The fund’s income tax return reports the fund’s assessable income and deductible expenses to calculate the fund’s tax liability.
Member contribution statement which combines all of the member’s accounts in their SMSF into a single statement, showing the member’s personal details and transactions for the year, including all contributions made by each member, as well as the member’s balance split into accumulation value, retirement phase pensions, transition to retirement income stream (TRIS) value and defined benefit income stream account balance.
Regulatory and compliance information which includes a summary of the fund’s assets and liabilities and other regulatory information.

When would an SMSF not be required to lodge an annual return?

An SMSF is not required to lodge an annual return in the following situations:

When an SMSF has not been registered with the ATO, as there is no requirement to lodge an annual return until then.
After the fund has been wound up and the final annual return has been lodged, there is no further requirement to lodge future tax returns.
When a fund is new, and it has no assets or has received no contributions or had no other activities during the year, it can lodge an RNN declaration.

When is your SMSF eligible to lodge a Return Not Necessary?

An RNN is lodged in the first year of an SMSF’s existence. Generally, the fund’s tax agent will lodge an RNN on your fund’s behalf. The RNN must declare the following supported by appropriate evidence:

the fund cannot hold any assets for that financial year which includes any cash on hand or bank accounts
no contributions or rollovers were made to the fund during the year
the fund holds assets after the end of the first year
evidence is required to show when the fund first held assets, which is when it first starts operating. Typically, this is a copy of the fund’s opening bank statement, and it cannot be a copy of the bank’s electronic transaction data or the fund’s general ledger. The ATO wants evidence that the fund owns the bank account and the opening balance when the account was first opened
the trustee confirms it will lodge the fund’s annual returns in the future

When is a Return Not Necessary required to be lodged?

A new SMSF entrant lodging an RNN must do so by 31 October, unless the fund is lodging through a tax agent, such as our company, in which case the due date is 28 February. However, regardless of whether the fund has appointed a tax agent, if the ATO is reviewing your fund at the registration stage, the due date will revert to 31 October. The ATO will notify you if your fund is under review. If either date falls on a public holiday or a weekend, the date of lodgement is the first following business day.

How often can your SMSF lodge a Return Not Necessary?

An RNN declaration to the ATO can be made only once. However, the ATO can grant an exemption, allowing a fund to lodge an RNN declaration in subsequent years, but you must request it in writing. The ATO grants an exemption only in limited circumstances. It is very rare for a second and subsequent year fund to lodge an RNN. Generally, the fund’s registration would instead be cancelled.

As we also act as tax agents for our clients, we can make this request on the fund’s behalf online. Otherwise, a trustee can request this by writing to the ATO at:

Australian Taxation Office
GPO BOX 9990
[insert the name and postcode of your state’s capital city]