What Is an SMSF Auditor Contravention Report?
An SMSF auditor contravention report (ACR) is an ATO online form for an auditor to report breaches of superannuation law. During an SMSF audit, where the auditor identifies that a contravention of the Superannuation Industry (Supervision) Act 1993 or associated regulations has occurred, is occurring, or may occur, they must consider whether the matter meets the reporting criteria.
When Is an SMSF Auditor Contravention Report Required?
Not every breach identified during an audit results in an SMSF auditor contravention report being lodged. The auditor must assess the issue against the reporting criteria set out by the Australian Taxation Office, including whether the contravention is rectified, repeated, or meets prescribed reporting thresholds.
A breach is determined by reference to the legislation and applicable rules. Once the facts are established and the breach is identified, the application of the reporting criteria is structured and largely mechanical.
- Test 1: Fund definition test
- Test 2: New fund test – any single contravention more than $2,000
- Test 3: Trustee behaviour test – repeated breach
- Test 4: Trustee behaviour test – breach not rectified
- Test 5: Trustee behaviour test – fail to meet a statutory time by more than 14 days
- Test 6: Financial threshold test – value of contraventions is more than 5% of the value of the fund’s total assets
- Test 7: Financial threshold test – value of contraventions is more than $30,000
Where the criteria are met, the SMSF auditor contravention report must generally be lodged within 28 days of completing the audit. Importantly, the obligation is not limited to current-year issues. An SMSF auditor contravention report may arise for prior-year breaches or ongoing contraventions that remain unresolved.
What Trustees Should Do When a Contravention Arises
Where a contravention is identified, trustees should assess whether the issue can be rectified and take action as early as possible.
While rectification is important, trustees should also consider the commercial reality. Not all breaches require immediate unwinding. The rectification is not immediately reported back to the ATO; it’s reflected in the next reporting cycle.
For example, where a term deposit has been incorrectly recorded under a corporate trustee without acknowledging the fund as beneficiary, immediate termination to lose interest income may not be necessary.
Real-World Scenarios
Contraventions do not always arise from deliberate non-compliance. In many cases, they occur where decisions are made without fully understanding how the legislation applies in practice.
This highlights a consistent theme in SMSF compliance: seeking advice at the right time is critical.
For example, prior to the introduction of SuperStream, sometimes trustees would transfer funds from an SMSF to a retail fund without a rollover statement. The concept of rollover was not widely understood, resulting in the amount being treated as a contribution by the receiving fund and an early release from the SMSF.
In another case, a fund held a registered vehicle number plate classified as a collectible. The trustee has not considered insurance requirements on the basis that the asset is intangible, however the legislation requires collectibles to be insured within a specified timeframe.
Timing of regulatory change can also lead to issues. When Limited Recourse Borrowing Arrangements (LRBAs) were first introduced, it was not uncommon for property to be acquired before a bare trustee structure had been properly established.
A similar pattern has been observed with cryptocurrency. Trustees have transferred crypto assets held in their personal name into the fund, assuming it to be a transfer of ownership, when in fact it results in a breach of the acquisition rules.
In each of these cases, the outcome is not determined by intent, but by how the legislation applies. Early advice and proper structuring are essential to ensure that actions taken align with the regulatory requirements from the outset.
Mitigation Factors
Mitigation factors describe the circumstances in which a contravention occurred. This includes how the issue arose and the surrounding facts.
The ACR requires both the contravention and any relevant mitigation factors to be documented as part of the overall record of the matter.
For example, administrative breakdowns can arise where responsibilities are shared across multiple advisers. When a personal accountant and an SMSF accountant operate independently, actions taken outside the SMSF environment can affect the fund. The deregistration of a corporate trustee is one such instance, as it directly impacts the fund’s compliance position.
Operational errors can also give rise to contraventions. In funds with multiple bank accounts, transactions may be processed through the incorrect account. Even where there is no evidence of funds being accessed or misused, the contravention remains.
Planned or taken steps to rectify the contraventions
This is the label used in the ACR.
Rectification is recorded independently from the contravention and mitigation factors.
This section documents the actions taken, or proposed to be taken, to address the contravention. This may include reversing transactions, restructuring arrangements, or implementing corrective steps.
The report separately requires confirmation as to whether the contravention has been fully rectified, or whether there is a plan to fully rectify it. Where applicable, a date is required for the completion of full rectification.
Our Approach
As part of our approach, we consider and document mitigation factors surrounding a contravention, as these form part of the ATO’s ACR reporting framework.
We may issue a draft SMSF auditor contravention report to trustees prior to lodgement to resolve any factual inaccuracies or miscommunication. This does not change the reporting outcome where a contravention is required to be reported, but helps ensure the information provided is accurate, complete, and properly contextualised.
Materiality and the Existence of a Breach
It is important to distinguish between the existence of a breach and whether it is reportable. Even minor or technical contraventions remain breaches of the legislation.
Materiality becomes relevant at the reporting stage, where the ATO criteria determine whether the breach is significant enough to require an SMSF auditor contravention report.