ATO Cracks Down on SMSF Trustees Over Super Breaches…

Homeownership remains the great Australian dream, and for many, self-managed super funds (SMSFs) play a crucial role in securing financial stability. With around 630,000 SMSFs managing over $1 trillion in assets, the sector is a significant component of Australia’s retirement savings landscape.

While the Australian Taxation Office (ATO) acknowledges that most SMSF trustees adhere to regulations, a small but concerning percentage fail to comply. According to ATO Deputy Commissioner for Superannuation & Employer Obligations, Emma Rosenzweig, between 96% and 97% of SMSF trustees who have lodged their tax returns have no reported contraventions. However, this still leaves 3% to 4% in breach of superannuation laws, with significant sums at risk.

“During the 2024 income year, there was a 10% increase in funds with contraventions recorded, and for the first half of this year, we’ve noted an additional 13% rise compared to the same period last year,” Rosenzweig stated at the SMSF Association 2025 National Congress.

Key Areas of Concern for SMSF Trustees

The ATO has identified four primary areas where SMSF trustees are falling short, prompting increased scrutiny and enforcement actions.

1. Illegal Early Access to Super

Beyond administrative errors, the most serious breach on the ATO’s radar is the illegal early access of super funds.

“This remains a major concern, with an estimated $481.8 million being accessed illegally—either directly or through loans,” Rosenzweig said.

“Some trustees continue to treat their SMSF as a convenient source of funds, jeopardizing their retirement savings and the integrity of the system.”

Individuals who withdraw funds illegally face taxation on the amounts accessed and penalties of up to $6,600 per breach. Promoters of illegal early access schemes face even harsher consequences, including loss of professional licenses, additional tax penalties, and potential criminal prosecution leading to imprisonment.

2. Loans to Members

The ATO has also seen a rise in SMSF trustees improperly using their funds for loans to members, a direct violation of the Superannuation Industry (Supervision) Act (SIS Act).

“Some advisers suggest that if early access is structured as a loan, it’s less problematic. Even worse, we’ve seen efforts to backdate documentation to make illegal withdrawals appear legitimate—behavior that could constitute fraud,” Rosenzweig warned.

Loans to members can attract penalties of up to $19,800 per contravention. The estimated value of illegal loans to members this financial year has reached $231.7 million, reflecting a 10% increase from the previous year.

“An SMSF cannot be used to prop up business cash flow, fund holidays, purchase cars, or sustain gambling habits,” Rosenzweig emphasized.

3. Non-Lodgement of Annual Returns

Failing to lodge annual returns is another persistent issue among SMSF trustees.

“Lodgement is a fundamental responsibility when managing an SMSF,” Rosenzweig stated.

For the 2023 income year, approximately 85,000 funds have yet to submit their annual returns, while 54,000 returns from 2022 remain outstanding.

“While only 3% to 4% of lodged SMSFs report contraventions, the rate of breaches is likely much higher among those failing to lodge their returns,” she said.

Non-lodgement raises red flags for illegal early access, particularly among newly established funds. Over 4,500 SMSFs set up in 2023 have yet to file their first return.

Failure to lodge can have serious consequences, including removal from the ATO’s register. Once removed, a fund can no longer receive rollovers, and employers may stop contributing.

4. Ignoring Excess Contribution Release Authorities

The ATO has also observed instances where SMSF trustees disregard notices to release excess contributions, allowing super to be taxed concessionally when it should not be.

“Trustees who fail to release the nominated amount may face a non-compliance penalty of up to 20 penalty units, or $6,500,” Rosenzweig explained.

Similar non-responsiveness is being observed with commutation authorities, where members exceed their transfer balance cap and fail to act on ATO determinations. Ignoring these requirements can result in penalties and the loss of entitlement to exempt current pension income.

Disqualification of SMSF Trustees

So far this financial year, the ATO has disqualified approximately 660 SMSF trustees.

“Disqualification is a serious action taken when we believe a trustee poses a future compliance risk, compromising retirement savings,” Rosenzweig said.

Once disqualified, an individual is permanently banned from acting as a trustee or director of a corporate trustee. Their name is also published in the ATO’s Disqualified Trustee Register and the Federal Register of Legislation, which can have long-term repercussions for their professional and personal reputation.

Final Thoughts

As SMSFs continue to grow in size and significance, the ATO remains vigilant in ensuring compliance. Trustees must understand their obligations and take proactive steps to avoid breaches that could jeopardize their funds and financial future. With increasing enforcement actions, non-compliance is becoming an increasingly risky gamble.

Rick Maggi CFP, Financial Advisor Perth, Westmount Financial