More than 130% rise in SMSF trustee disqualifications

There was more than a 130 per cent increase in the number of self-managed super fund (SMSF) trustees disqualified year-on-year, according to the latest statistics released by the Australian Taxation Office.

The regulator released the statistics on the number of trustee disqualifications processed to 31 March 2023, which revealed 588 trustees were disqualified for the 2023 financial year up until the end of March this year, representing a 134 per cent increase on FY22 of 251 disqualified trustees.

With three months until the end of the financial year, it would be no surprise if those numbers go even higher, said a leading auditor.

Shelley Banton, head of education at ASF Audits, said the ATO’s concerns around increased activity in illegal early access appeared to be founded by the massive spike in disqualified trustees.

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“While SMSF trustees can be a target of unlawful early access scams, the ATO has seen an increase in the number of SMSF trustees accessing their funds for reasons such as paying off business debts, holidays, renovations and new cars,” she said.

“The other red flag is the number of SMSFs who haven’t lodged their first annual return and those lapsed lodgers, indicating there may be compliance breaches for not lodging.

“The results also show that the ATO is dealing with a larger cohort of SMSF trustees with serious breaches and compliance history. The reason is that the ATO will typically disqualify trustees where there are concerns that the individual will either remain a future compliance risk or a risk to their retirement savings.

“Given that the ATO only disqualifies a trustee after other enforcement action has been considered, it demonstrates that the SMSF sector’s integrity continues to be maintained.”

Banton said the ATO had definitely identified illegal early access has increased.

“It did put out warnings to let trustees know if they were repeat offenders they would be targeted,” she said.

“I don’t think it is a bad thing [the disqualifications]. They have been identified by actuary contravention reports auditors and it provides integrity to the super system as well as paths that professionals are taking to identify people that should not be in SMSF, and these latest statistics show that there are working.

“As auditors, we understand the economic impacts of what happens when people try to access their super early, but it doesn’t [belie] the fact that super is for retirement — not now — and that is why there are strict conditions of release.

“These statistics don’t include those SMSFs that continue to play by the rules but rather the lowest common denominator that aren’t doing the right thing.

“Of course, there will be some people who have been scammed by illegal operators that tell them they can access their money earlier, but the SIS rules stop at the trustee level so at the end of the day they are ones who are accountable.”

This story previously appeared on Super Review's sister title SMSF Adviser.