ATO concerned that SMSFs are incorrectly reporting borrowing details relating to property purchases

The Australian Taxation Office has raised concerns that self-managed superannuation funds have been incorrectly reporting the details of limited recourse borrowing arrangements used to buy property.

The warning comes as the ATO prepares to take up new and more flexible powers to deal with SMSF trustees who fail to follow the rules.

From 1 July, the ATO will be able to impose a wider range of penalties on funds that breach superannuation law. Under the new penalty regime, trustees may be personally liable for penalties of up to $10,200 per breach. They may be forced to rectify the problem and complete an SMSF education course.

SMSF trustees are required to lodge accurate annual returns each year to the ATO detailing their fund’s assets, liabilities and income. Penalties can be applied to those that fail to lodge their annual returns on time, or incorrectly report the details of their fund.

The ATO said it had noticed some trustees had misreported details of limited recourse borrowing arrangements, which are used to borrow to buy property through an SMSF, in their funds’ annual returns for 2013.

To help trustees understand the requirements, the ATO has released a detailed guide describing how to complete each section of the annual return.

The ATO has recently released the 2014 version of the annual return for SMSFs. It has also clarified some of the rules that apply to the borrowing arrangements and assets they are used to acquire.

Strict conditions apply to borrowing money through limited recourse borrowing arrangements. There can be civil or criminal consequences for fund trustees that fail to follow the rules.