Bad apple identification regime recommended for SMSFs

The SMSF Association has recommended to the Australian Taxation Office (ATO) that it implement a safeguard regime to identify people who seek to re-enter the self-managed superannuation funds regime after being guilty of prior contraventions.

The SMSF Association recommendation has come in response to an ATO draft Practice Statement on education directions and their use in requiring SMSF trustees to complete approved SMSF education courses if they are deemed to lack understanding of the Superannuation Industry (Supervision) Act and related regulations.

The SMSF Association noted that the ATO cannot issue an education direction to people who are no longer trustees or directors of SMSFs but pointed to the ability of people to re-enter the regime.

“We agree with the ATO’s position that a direction cannot be issued to a person who is no longer a trustee/director at the time the ATO decides to act. However, this may allow a former trustee involved in a contravention to resign, avoid the education requirement, and later re-enter the system by establishing or joining another SMSF,” the association’s response said.

It said that, because of this, it recommended the ATO “implement system safeguards to identify individuals linked to prior contraventions if they seek to re-enter the SMSF system”.

“This would support appropriate risk profiling of new trustees, helping maintain the integrity of the SMSF sector,” the response said.

The SMSF Association also told the ATO that anecdotal feedback and research into trustee behaviour indicated historically low engagement with ATO-delivered education products, with trustees preferring independent, sector-led learning.

“When the law was introduced, it anticipated that ‘other entities’ could develop and deliver approved courses,” it said “However, this pathway now appears unavailable or unclear.”

The SMSF Association recommended the ATO “restore the option for ‘other entities’ to provide approved courses, supported by published quality benchmarks and a transparent approval process to ensure independence, consistent learning outcomes and high-quality trustee education.”