New SMSF reporting rules a real headache for older operators

The Australian

16 September 2017

James Gerrard

Following the recent introduction of the $1.6 million cap on tax-free super account balances in retirement, the Australian Taxation Office has suggested a new “event-based” reporting regime will be necessary to keep self-managed super fund trustees accountable as of July 1, 2018.

The new reporting framework will provide the ATO with information that it needs to enforce its new transfer balance cap — that is, the maximum amount of money you can move into a tax-free superannuation pension account. The changes will require an increased level of vigilance for many trustees: most trustees now need only pay attention to SMSF reporting once a year when they do their tax returns; unfortunately, this is going to change.

Under the new system, the way pension accounts are managed could potentially change. Trustees will be obliged to report a range of retirement phase income stream events to the ATO including:

  • When any member of the fund starts drawing down an income from the fund;
  • When any member of the fund makes a lump sum withdrawal;
  • Any time a member moves their super between pension and accumulation mode.

Time frames to meet the reporting requirement could be tight. Although the ATO is yet to finalise the rules, it has already indicated that trustees could have as few as 10 days after the end of the month in which the reportable event occurred to report to the ATO.

Ricardo Accounting SMSF specialist Timothy Ricardo believes the changes will raise compliance costs for SMSFs. “The new event- based reporting framework will add another layer of expenses to the continuing costs already associated with running an SMSF,” he said.

Ricardo also expressed concern that the changes could push SMSFs out of reach of many everyday investors.

“SMSFs are a fantastic investment vehicle but these changes are likely to drive up operating costs, making the goal to set up an SMSF unattainable for some. The main beneficiary of the changes will be SMSF software providers because trustees will become more reliant on them moving forward to automate the process of reporting events.”

The requirement to report the movement of money from pension to accumulation mode could also be a nightmare for older trustees. Some super fund members move their super balance between pension and accumulation phase for strategic reasons and will now need to report each time they do this.

In particular, retirees who undertake a popular Centrelink-related strategy to take one-off lump-sum payments to reduce assessable income under the income test may find the new reporting obligations a nuisance.

Under the proposals from July 1, 2018, taking lump sums out of a super pension will be a reportable event and will require the trustee to notify the ATO.

Star Associates certified practising accountant Luke Star says: “Although the benefits of regular reporting are clear on paper, it is uncertain at this stage whether all this anticipated information being reported to the ATO will be able to be executed in a streamlined manner. There will be a lot of information to analyse and process.

“Depending on the final reporting requirements, up to 600,000 SMSFs in Australia will be sending event-based information to the Australian Taxation Office.”

Although the ATO has indicated that trustees will not have to report every pension payment or every investment gain or loss on an events basis, the pressure will be on trustees to ensure the compliance of their super fund.

Moreover, the introduction of event-based reporting may see a shift of people out of self-managed super funds into retail and industry funds to sidestep the extra reporting headaches, particularly in retirement.

James Gerrard is the principal and director of financial planning firm