SMSF annual returns: avoid the top 5 mistakes
While the due date for SMSF annual returns depends on the particular fund, if you had an SMSF at 30 June 2019 or has wound up an SMSF during the last financial year, you will need to lodge a return. To assist taxpayers with completing the return, the ATO has released a list of the most common mistakes to avoid, including lodging a return without auditor details, not valuing SMSF assets at market value, lodging a return with nil assets, not having a unique bank account, and incorrect electronic service address.
For anyone with a self-managed super fund (SMSF) at 30 June 2019 or has wound up an SMSF during the last financial year, your SMSF annual return for 2018-19 may be due. This annual return must be lodged with the ATO even if your SMSF does not have a tax liability.
This year, there are concerns that a “significant” number of SMSFs (90,000 of the total 600,000 population) appear not to have lodged an annual return.
A warning has been issued by the ATO to those that haven’t lodged that their fund may be made non-complying or have penalties imposed. To assist those lodging the annual return, the ATO highlighted some new labels, including a crypto-currency, downsizer contributions, outstanding limited recourse borrowing arrangement amounts, and non-arm’s-length income. In addition, it has also released a list of most common mistakes to avoid when completing the returns.
Lodging a return without auditor details
An approved auditor must have completed an examination of your SMSF’s financial statements and assessed its compliance with super law before the annual return can be lodged. Where a return is lodged without auditor details, it will not be recognised as a lodgment and the complying status of the fund will be impacted. Remember, it’s good practice to appoint an auditor at least 45 days before your return is due to ensure that the audit is completed on time to meet the lodgment date.
Not valuing SMSF assets at market value
Accurate asset valuation is required to ensure that your SMSF retains its complying fund status. Generally, SMSF assets need to be calculated at market value at 30 June to prepare your fund’s accounts, statements and annual return. The ATO will accept valuations where you can demonstrate the valuation has been arrived at using a “fair and reasonable process” and depending on the asset, a qualified independent valuer may be required. Keep in mind that penalties may apply for inaccurate valuations.
Lodging a return with nil assets
If your SMSF is in its first year and you have no assets yet that has been set aside for the benefit of members, instead of lodging a SMSF annual return, you will need to let the ATO know to either cancel your fund’s registration or flag the SMSF’s record as Return Not Necessary (RNN). The ATO will not accept an annual return from an SMSF that has no assets as an SMSF is not legally established until the fund has assets set aside. The only SMSFs that can lodge a return with nil assets are those being wound up.
Bank account not unique to the SMSF
The bank account that you use for your SMSF must be separate from the trustees’ individual bank accounts and any related employers’ or advisers’ bank accounts. The account needs to be in your SMSF’s name to manage operations, accept contributions, and rollovers of super and income from investments.
Incorrect electronic service address
The electronic service address allows your SMSF to receive electronic remittance advice and contributions if you have members receiving super from non-related employers. It is not an email address or the contact details of the SMSF messaging provider. If your SMSF does not have an electronic service address, you can apply to one of the many external providers for one.
Confused? Need help?
We can help with you with all your SMSF queries. If you’ve previously completed your SMSF return yourself but are too busy this year, we can give you a helping hand. If you’re unsure about any aspects of auditing, valuation, or if you simply need help getting an electronic service address, contact us today for professional advice and service.