Tribunal upholds ATO decision on administrative penalties in SMSF case

In the recent decision, QQCS, CZMV, JRFK, PJXX and WHVG and Commissioner of Taxation, the Administrative Review Tribunal of Australia upheld a decision by the Commissioner of Taxation to impose administrative penalties to the trustees of an SMSF after they made misleading statements about the fund being audited.

The case concerned SMSF annual returns that were lodged for the 2015, 2016, 2017 and 2018 income years.

The applicants in the case were the directors of a corporate trustee for an SMSF. A statement was made at Box 6 in the annual return of the SMSF that an SMSF auditor had completed an audit for the fund and that the auditor's report was unqualified.

In Box 6 the fund must specify the name, auditor registration number, phone number, postal address of the fund’s auditor, the date the audit was completed, whether Part B of the audit was qualified, and, if the report was qualified, whether that was rectified.

The Commissioner contended that the statement made at box 6 was false or misleading and imposed penalties upon the trustees on the basis that the fund had intentionally disregarded a taxation law.

Two of the trustees were unavailable at the hearing as they were overseas, with the other trustees only advising the Commissioner of this at the hearing.

The Commissioner first engaged with the trustees around December 2019. The ATO requested copies of the audit reports for the fund for the relevant years and stated that if incorrect audit details had been provided, then amended returns would need to be filed within a 21 day period.

The ATO also sought information from the SMSF auditor listed in box 6. The auditor responded to the ATO in December 2019, confirming that she had not audited the fund at any time. She also provided a copy of an email from the audit firm's principal which terminated the engagement with the SMSF for the income years 2016 and 2017. The auditor stated that she did not audit the fund at any time.

In a letter in January 2020, the Commissioner advised the fund that an audit of 2014 to 2019 income years was commencing.

One of the trustees replied to the Commissioner, stating that the reason the auditor's details had been recorded in the SMSF annual returns for those years was because she had been told by the principal of the audit firm that the auditor was completing the audits.

In October 2024, the Commissioner then issues notice of penalty assessment to the trustees and reasons for its decision.

One of the trustees told the Tribunal that they had never spoken to the auditor but assumed the audit was being completed because she was told by the principal of the audit firm. The trustee said this was communicated in an email but that she had lost the email.

The Tribunal also noted that no audit reports had been delivered to the trustee when she filed the SMSF annual returns in the relevant year, which recorded that the audit reports had been issued.

The trustee said she decided to file the SMSF annual returns in the form they were filed because she was concerned about the fund being declared a non-complying fund if they weren't, and claimed this was a common practice.

Evidence provided to the Tribunal also indicated that there were qualified audit reports for 2017 and 2018 and auditor contravention reports from audits completed by different people from different audit firms.

In light of this, the Tribunal stated that the evidence of the trustee had no credibility, particularly as no evidence was provided by the trustee to corroborate or clarify her evidence.

The trustee submitted that all contraventions were subsequently corrected and unqualified audit reports were issued. However, the Commissioner stated that there was no evidence to support that.

The Tribunal concluded that the applicants had not met their burden of proof to persuade the Tribunal that the penalty for intentional disregard was excessive or inappropriately imposed.

"Intentional disregard requires dishonesty and actual knowledge that a false or misleading statement is being made. That can be inferred from the facts and circumstances. That test is met," said General Member of the Tribunal, Joanne Dunne.

The Tribunal also rejected the trustee's claim that the filing of the SMSF annual returns was merely a premature lodgement with a placeholder date or that filing the returns without having an audit report was common practice.

The Tribunal therefore affirmed the Commissioner's decision to impose penalties.

"There are no other features of this case nor any other evidence before me relating to any of the Applicants’ circumstances that demonstrates on the balance of probabilities that the penalties should be remitted in whole or in part," said Dunne.