What Is SMSF Contravention

A self-managed super fund must be managed properly if it is going to make money for its participants. Part of this proper management is accurate tax reporting. You may already have an approved auditor to handle your SMSF tax reporting, but do you ever feel concerned and want to know what is SMSF contravention?

Contravention is a common term in the SMSF vocabulary. Your fund has to count on an SMSF auditor who applies contraventions properly or it could lose its status as a retirement savings product. Your auditor is familiar with what contraventions are and knows how to report them to the Australian tax authority using specific criteria.

Essentially, contraventions for SMSFs are actions that take place within the operations of the fund. The trustees to the fund are the individuals who take these actions, which, for tax purposes are called events. Events are actions a trustee within the fund causes to happen such as loaning funds out or separating assets.

Whenever these actions or events occur, contraventions to the fund have also occurred. These must be explained and reported to the tax authority by your auditor. All contraventions for a tax year must be accurately reported using tax form “tests”. When reporting a contravention, your auditor applies the facts to these tests to determine where they fall as far as taxes are concerned. There are some events that may not, according to tax requirements, need to be reported.

Your fund should already pass the first test. This tax test is one your auditor must complete in order to show to the tax authority that your fund meets all the criteria to be considered a SMSF. Usually, your fund will meet the requirements of the test so that it can carry on and build savings for each trustee. Once the auditor can pass Test One, he or she then has to work through all remaining tests for each event or contravention that has occurred.

These tests will help determine what is SMSF contravention for your fund for that year. Do not become concerned about your auditor if there are problems with understanding the contravention reporting requirements. These change and are often confusing, but the tax office is happy to help them. By reporting all actions accurately, your fund has a greater chance of continuing without incurring tax penalties or loss of status.