What are the implications?
A Self Managed Super Fund (SMSF) may become a 'non-complying' fund if it fails either the “residency test”, which means the fund is not a resident of Australia or the “compliance test”, when the fund has been issued with a
Notice of Non-Compliance from ATO because it does not comply with the SIS Acts or SIS Regulations.
Once the fund becomes “non-complying”, the fund would have disastrous tax consequences, including:
| Criteria | Tax implication |
| Tax rate | Set by ITAA 1936 section 26, the rate of tax payable by a trustee of a non-complying SMSF in respect of the taxable income of the fund is 47% (including Budget Levy of 2%) |
| Assessable income | Under section 295-325 of ITAA 1997, the assessable income in the first year becomes “non-complying” is calculated as under: |
| Assessable income = Asset value (-) all members undeducted contributions (+) ordinary income |
| In the following years when the Fund is still non-complying: |
| Asssessable income = Ordinary income |
| Exempt current pension income deduction | Not available |
| Refund franking credit, TFN withheld, and foreign income offset | No credits or offsets can be claimed |
| ATO interest charge | Interest accrued can be substantial where the ATO issues the notice of non-compliance in respect of a financial year that has long since passed |
| Tax losses and capital losses | Cannot carried forward |
| Compliance with Superannuation Industry (Supervision) Act 1993 and Superannuation Industry (Supervision) Regulation 1994 | None of the requirements of the Act or Regulation are applicable since the Fund is non-complying |
About the author
Naz Randeria is the Founder and Managing Director of Reliance Auditing Services. With more than 25 years’ experience in audit and accounting, Naz is an ASIC registered SMSF Auditor, SMSF Specialist Auditor, Registered Company Auditor, and Chartered Accountant.
She is actively involved in the SMSF audit sector and is passionate about sharing audit, compliance and SMSF knowledge with clients, professional colleagues and the wider public.
View Naz Randeria’s full profile
