The SMSF industry is not governed by prudential regulations, but the strict eye of the ATO more than compensates for it. So if you are an SMSF trustee and you feel you have erred somewhere and the ATO may attend to it anytime soon, it is wise to get your folly corrected.
Error pertaining to arm’s length transaction
Let us start by assuming that your fund has breached the “acquisition of assets from members” rule and bought a residential property from related party. This is just one example of an error. Now, the auditor who works on your fund may need to report it to the ATO (Auditor Contravention Report) or ask you to get the problem rectified. Depending on when the purchase occurrs, the auditor may not have sensed an error yet.
Come out in the open as soon as you discover your error
I will recommend you to get in touch with your auditor and let him know you have erred. It is always good to come out in the open rather than banking on the incompetence of the auditor, who, chances are, is ultimately going to find the mistake.
Don’t think your auditor won’t find out
Besides, when you come out in the open you win a psychological battle. It is like giving an impression that you care and want to set things right. Now, the auditors are under obligation to report cases to the ATO but most of them will still give you a chance to sort out the mistake yourself if you are honest enough to admit it.Even better if you have rectified the issue before the auditor reports it.
In case matters have gotten out of hand or you have been a habitual offender, the ATO is free (it is always free….sigh!) to act in whichever way it deems fit. It can give you a chance to rectify your mistake or even impose penalties on you.
Here is a recommendation: do not try to be too smart. It is professionals you are dealing with. Be ready to admit and rectify your mistake at all times.
How do you react to your SMSF mistakes and have you ever found the ATO too harsh on you?