News in brief

NALE income nexus retained

The ATO has released its final ruling on non-arm’s-length expenditure (NALE) inside an SMSF and has retained its position that NALE can have a sufficient nexus to all of the ordinary and/or statutory income derived by the fund.

The regulator recently released Law Companion Ruling (LCR) 2021/2, which states in section 19 that “a fund may incur expenditure that does not specifically relate to a particular amount being derived by the fund but still has a sufficient nexus more generally to all income derived by the fund”.

The LCR also stated NALE incurred to acquire an asset would also have a sufficient nexus to income derived by the fund and this would include any capital gains realised on disposal of the asset, even where a trustee has refinanced any borrowings and shifted them to an arm’slength basis. This position was altered in the case where a super fund incurs NALE of a recurrent nature, that was not related to the acquisition of an asset, in one income year, but does not incur that cost in a later year, with section 21 of the LCR stating the nexus to the ordinary or statutory income would only apply during the relevant income year.

Retirement covenant captures SMSFs

The federal government’s proposed retirement income covenant will require all superannuation funds, including SMSFs, to have a documented strategy to identify the retirement income needs of fund members and provide a plan to service those needs.

Superannuation, Financial Services and the Digital Economy Minister Jane Hume released a position paper on the covenant that said: “The introduction of the retirement income covenant is an important step in encouraging the further development of the retirement phase of superannuation.

Jane Hume

“The covenant will codify the requirements and obligations for superannuation trustees to improve retirement outcomes for individuals, while enabling choice and competition in the retirement phase.”

Hume said the covenant would also address a key finding of the Retirement Income Review, which claimed it was possible to increase the standard of living of retirees by improving their use of superannuation assets in retirement.

The proposal paper noted an existing covenant in the Superannuation Industry (Supervision) Act 1993 includes obligations to formulate, review regularly and give effect to an investment strategy, and the paper uses similar language to describe the new proposed arrangement.

Auditor independence guide updated

The ATO has updated its independence standards guideline for SMSF auditors, defining how an objective review of operations can be carried out to ensure compliance with the current version of APES 110.

To this end, the regulator has enhanced its digital guide covering this issue, first published in mid-March, by adding new information to the “Applying appropriate safeguards” section called “Appropriate reviewer requirements”.

In particular, it has now specified the meaning of an ‘appropriate reviewer’ and the importance of having them provide an objective review.

Further, it has outlined how an independent reviewer can use a sampling approach to situations where an SMSF auditor’s independence is unclear because their firm generates a large proportion of its fees from one referral source.

The ATO has also indicated the evidence it expects to see documented on the audit file of the reviewer.

The new guidance is to provide greater clarity regarding one of the safeguards available to practitioners to ensure their activities are complying with the amended auditor independence standards.

Trustees more open to advice

The latest sector research has shown the economic instability resulting from the COVID-19 pandemic has seen a shift in attitudes toward financial advice, with SMSF trustees now more open to receiving this type of guidance.

The “Vanguard/Investment Trends 2021 SMSF Investor Report” indicated this change in sentiment toward advice had mainly come from trustees defined as validators – individuals who would like a second opinion to affirm their decisions.

To this end, the study showed 56 per cent of this cohort was now open to receiving financial advice as opposed to 49 per cent expressing this opinion in 2020 and 47 per cent doing the same in 2019.

However, despite an increased interest in seeking financial advice, the report revealed the number of SMSFs using a financial planner fell from 185,000 in 2020 to 160,000 in 2021. Further, funds not currently using a qualified financial planner increased from 220,000 in 2020 to 245,000 in 2021.

Transitional SuperStream approach

The ATO has confirmed it will not take a hardline enforcement approach to SMSFs that do not comply with the new SuperStream requirements set to be implemented on 1 October this year even though funds in this predicament will be considered to have committed a regulatory contravention.

“Not complying [with the SuperStream requirements] is a breach of the payment standards and penalties may apply. However, like any new functionality and change, the ATO wants to support those impacted and therefore will allow a transition window for the industry to get up to speed and understand SuperStream,” ATO superannuation and employer obligations director and rollover project manager Belinda Black said.

“As always though we will monitor behaviour and if necessary scale up our compliance activity.”

Black illustrated the regulator’s attitude toward SuperStream compliance further when asked about SMSFs being wound up without having the proper payment standard protocols in place. The example put to the ATO officer was the enforcement action that would be applied to a fund commencing its wind-up in October this year, not being SuperStream compliant, with the process only being completed in May 2023.

“[For] that specific scenario, it’s unlikely we would take compliance action. However, we would record the details still, continue to monitor all SMSF rollovers, and determine whether the risk increases and make an assessment based on that,” she said.

Tailored trading platform released

An online share trading platform has fine-tuned its offering, specifically building in unique functionality to service SMSF clients.

Marketech has tailored its Focus option to allow SMSF trustees to transact in a simpler manner, which they are unable to do with other online equity trading services.

“Marketech’s focus allows people to open an account in their own name, in their own name and their spouse, in the name of their SMSF, in the name of their family trust or in the name of their private company,” Marketech chief executive Travis Clark noted.

“With other platforms you can only trade shares in your own personal name. You’d then have to do some sort of extraction of that asset from the pooled trust and then you’d have to do an off-market transfer to your super fund. The process is cost prohibitive and administration prohibitive.”

Marketech Focus uses the Macquarie cash management account product to settle trades, which is a preferred product in the SMSF sector.

Clark describes the platform as data heavy and providing live information from the Australian Securities Exchange.

SMSFA adds two to board

The SMSF Association has announced the appointment of two new board members, Professor Deborah Ralston and BT head of financial literacy and advocacy Bryan Ashenden.

Ralston rejoins the association board after stepping down as chair in September 2019 when she was appointed by Treasurer Josh Frydenberg to join the three-member Retirement Income Review panel.

Ralston is currently a professional fellow at Monash University, member of the steering committee for the Mercer CPA Global Pension Index and member of the Reserve Bank Payments System Board, and was also the inaugural chair of the Australian Securities and Investments Commission Digital Finance Advisory Board.

Aside from his work at BT, Ashenden is an experienced lecturer on ethics and professionalism within the financial advice sector and the economic and legal context for financial planning and is a member of working groups at the Financial Services Council.

The association noted his previous experience made him a suitable candidate for the position as he will be required to interpret legislative and regulatory changes and provide meaningful actions for advisers, advice businesses, clients and consumers.

Class launches audit matching tool

SMSF administration service provider Class has launched a new tool to help SMSF accountants find thirdparty auditors to assist both parties to comply with changes to auditor independence requirements.

Accountants using the tool will be required to enter their details and the number of SMSFs they wish to have audited, and a request for a quote can be sent to any or all of Class’s auditor partners.

The current audit partners are BDO, Super Know How and Unison, with a number of others expected to come on board in the coming months.

Class stated the three firms connect directly to its product suite and have a high level of data integration, which will provide an “efficient end-to-end process to their clients”, and together have the potential to service a large portion of the SMSF audit market.

Class chief executive Andrew Russell said: “By partnering with a provider that can integrate with their own technology systems, [an accounting business] can ensure that the relocation of the audit work is as streamlined as possible and as efficient as it can be.”