“If a fund doesn't satisfy all three tests at the same time, that is a problem and it will fundamentally change it from a compliant to a non-compliant fund,” he said.

If an SMSF trustee believes their fund may become non-compliant, Richardson there is an option for it to rollover its benefits to another fund before the ATO steps in.

“Although this does not seem to be in the legislation, it seems to be an administrative allowance from the ATO and it is certainly something of which an SMSF facing non-compliance issues should take advantage,” he said.

“If the fund has not met any of the requirements to be considered an Australian fund, you'd be advising the members to roll out their balance before becoming non-complying and being hit with that extra tax.”

Richardson said the consequences of becoming a non-complying fund is that members go from a 15 per cent tax rate on their benefits to the top marginal tax rate of 45 per cent which includes the ordinary income for the year and also the asset value at the start of that year.

“That means the tax-free proportion or the tax rate portion which will be taxed,” he said.

He gave an example of an SMSF that in the 2023 financial year had $1 million in assets at the start of the year with $200,000 being tax-free.

In that year the SMSF had $89,000 of income as a complying fund, which was taxed at 15 per cent as assessable income.

“That was $13,350 in tax, but if it becomes non-complying in the year then actually $889,000 of the fund will combine with the $1 million opening balance, less the $200,000 tax-free amounts plus that assessable income,” he said.

“It will now be taxed at the marginal tax rate of 45 per cent and we see over $400,000 in tax handled by that fund in the year. You can see that the fund is paying out a lot of its balance, so if you can take that option to roll out to another superannuation fund before becoming non-complying, that's what you want to do.”