Tax Office prepares to be flooded by 1,000 SMSF applications a week and looks to shut down inactive funds

The self-managed superannuation fund sector is soaring, with the Australian Taxation Office revealing it expects more than 1,0000 applications a week to be lodged for SMSFs in May and June this year.

Speaking at the annual Australian Securities and Investments Commission forum in Sydney yesterday the ATO’s commissioner for SMSF, Stuart Forsyth, said the rush was already on with the office receiving a record 500 applications to set up new funds in one day last week.

“It is the highest we have ever seen on one day,” he said.

“It is an illustration of the growth that is out there.”

This last minute surge before the end of the tax year will take the total number of SMSFs to half a million, although Forsyth said the ATO rejected about 68 of the 500 applications as being unsuitable.

Graeme Colley, director of education and professional standards at the SMSF Professionals Association of Australia, told SmartCompany a surge in applications for SMSFs was “not surprising” towards the end of the financial year.

“You can get a tax deduction of up to $25,000 on your contributions, so traditionally there is a spike towards the end of the year,” Colley says.

“People are disillusioned with larger funds and there is more interest in SMSFs generally, which influences people to set up their own funds.”

Colley believes speculation about the budget and the impact of what will happen means people are trying to protect themselves from any superannuation changes by setting up an SMSF.

He says the ATO receiving 500 applications in one day last year is interesting and he assumes people are setting up the SMSFs for the right purposes.

“The concern is that people are panicking or rushing in to set up an SMSF and hopefully the advice they are getting is for the right purpose to provide retirement benefits; they need to look before they leap,” Colley says.

The ATO also revealed at yesterday’s forum that it will seek to close down as many as 10,000 self-managed superannuation funds this year, targeting funds that are inactive and have not been lodging annual tax returns.

Forsyth told the forum the closures come at the end of a year-long review of the SMSF sector.

According to Colley this shutdown of SMSF funds is not something SMSF trustees should be concerned about.

He says “every now and again” the ATO goes through its database and looks at those funds which are inactive or have been closed down and it undertook a similar exercise a few years ago.

“When you look at shutting down 10,000 funds out of half a million it is only 2% of the total number, it is a very small proportion,” he says.

“The ATO will notify trustees a number of times before closing down a fund, it’s not like opening and shutting a shop.”