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Notices of Compliance - ATO to revise practice - ATO to reduce the


The ATO has advised that from early March 2019 its policy as to the issue of Notices of Compliance for newly established SMSFs will radically change – for the better!  Under the new policy, the ATO will issue a Notice of Compliance within a few weeks of a new SMSF first being registered with the ATO.  This will dramatically reduce the period – the “twilight zone” period - where the SMSF is described on the Super Fund Lookup website as being “Registered – status not determined” – which seemingly suggests that the SMSF, while registered, is neither complying nor non-complying.

Currently, the ATO only issues Notices of Compliance for new SMSFs once the SMSF lodges its first annual fund return (tax return).  Under the current system there could be a period of many months between the SMSF being registered and the Notice of Compliance being issued: many months during which the SMSF is in the “twilight zone”.  The problem with the current system is that between registration and the issue of the Notice of Compliance, the SMSF is not, strictly speaking, a complying superannuation fund.  The SMSF will only become a complying fund if and when the Notice of Compliance is issued with the complying fund status applying retrospectively from the date of establishment (assuming registration occurred within 60 days of establishment).

The primary defect of the “twilight zone” period is that third parties – such as unrelated employers, other super funds, banks and state revenue authorities may decline to accept the newly established SMSF as being a proper fund.  In particular, rollovers and transfers from retail funds and industry funds to the newly established SMSF may be declined or deferred until the Super Fund Lookup website shows the SMSF as having passed through the “twilight zone”.  Additionally, banks may decline to enter into transactions with the SMSF while it is in the “twilight zone”.

The ATO has statutory power to bring forward the date of issue of a Notice of Compliance under s40 of the Superannuation Industry (Supervision) Act 1993.  Currently, the ATO relies on s41 to issue the Notice of Compliance only after the first fund /tax return has been lodged.

Bringing forward the time of issue of Notices of Compliance does not mean that the trustee of the newly established SMSF can disregard Superannuation Legislation once the Notice has been issued.  The ATO has the statutory power to either revoke a previously issued Notice of Compliance or to issue a Notice of Non-compliance in respect of a later financial year.