SISFA

Time for balanced SMSF reporting regime

MIKE GOODALL is a board member of the Self-managed Independent Superannuation Funds Association. If you have an SMSF, you’ll no doubt be well aware of the reporting regime you need to comply with. Aside from the usual annual report, in 2018 a new series of reports based on particular events around the transfer of any money out of the fund into income streams was introduced. Known as event-based reporting, this framework allows the ATO to manage your transfer balance cap (TBC).

Your TBC is an account with a lifetime limit on the total amount of superannuation that can be transferred into retirement-phase income streams, including most pensions and annuities. If you started your SMSF before 1 July 2021, your TBC was $1.6 million. From 1 July 2021, for new funds established from that date, the limit was increased to $1.7 million. If you started your fund prior to 1 July 2021, your limit will be gradually increased up to the current $1.7 million over time. You can check what your actual limit is via the ATO’s online portal.

Back to event-based reporting: when the first member of an SMSF commences an income stream from the fund, this is an event that is reported to the ATO using a transfer balance account report (TBAR). The TBAR enables the ATO to record and track an individual’s balance for both their TBC (for income streams) and their total superannuation balance. There are a number of events that trigger the need to lodge a TBAR besides the moving of funds into the TBC and these include a death benefit income stream paid to a reversionary beneficiary, if you establish a limited recourse borrowing arrangement, any personal injury payments and any commutation directive by the ATO.

The regulator recently asked the industry for comments on a proposal to streamline the eventbased reporting regime by introducing compulsory quarterly reports for SMSFs. The Self-managed Independent Superannuation Funds Association and Tax & Super Australia have jointly responded to the ATO’s proposal as we believe this is an unnecessary increase in reporting, adding to the compliance burden of funds to the tax office with no material benefit. Rather, we suggest there should be a single set of annual reporting deadlines for all SMSFs, which will also assist with streamlining the reporting arrangements. This would reduce red tape and allow SMSFs to complete all their reporting requirements at once, such as the tax return, financial statements and TBAR.

Considering around 93 per cent of SMSFs only have one or two members, moving to a more frequent reporting regime will increase administrative obligations, remove flexibility and add more red tape for the majority of the one to two-member funds.

To keep on top of their TBAR obligations, large SMSFs have access to specialist software enabling lodgement with the ATO. Smaller SMSFs that may not have ready access to this software would find it extremely difficult to keep on top of their TBAR compliance and run the risk of additional penalties for late lodgement of the report. This may require SMSF trustees to seek advice from their accountant/tax agent on a more regular basis, which in turn will increase the cost of running an SMSF in the long run.

The ATO’s paper for comment notes that having an annual reporting regime could result in excess transfer balance tax assessments being delayed for some members. We believe this could be alleviated by SMSFs voluntarily lodging TBARs early. In our view, the adverse outcome to a small cohort of members does not outweigh the additional administrative burden to many SMSFs.

A final point worth making with TBAR is the need for a method to deal with the requirement to value a pension accurately at the time of commencement when this value may not be known at the time a TBAR is due. In this situation an SMSF may use a reasonable estimate, but any material change in the value of the pension makes accurate reporting challenging. The ATO needs to assist SMSF trustees with greater guidance in this area of reporting.