The new funds and data flow regime

SMSFs are to be incorporated in.to the SuperStream system from 1 October. Mark Ellem, head of education with Accurium details the processes the new standard will require funds to implement.

SuperStream is not a new concept for SMSFs, however, from 1 October it will be mandatory for SMSFs to use that system in relation to transfers in and out of the fund. As it is common for SMSFs to be established with members transferring benefits from an Australian Prudential Regulation Authority (APRA)-regulated fund, registration for SuperStream will become a necessary step of an SMSF set-up. Also, the rollover of member benefits out of an SMSF, including when the fund is wound up, will generally be required to be done via SuperStream. In the leadup to the mandatory start date, now is the time to review the SuperStream requirements and how they will affect the SMSF life cycle.

What is SuperStream?

Most will be aware of SuperStream – a standard format used to send and receive money and associated data electronically by the provider to the recipient, for example, employer provider to superannuation fund recipient.

SMSFs are required to comply with SuperStream where they have a member whose employer makes contributions to the SMSF that are required to be made via SuperStream. Generally, only SMSFs with members who are employees of an unrelated employer have to receive monies and associated data via SuperStream.

Consequently, many SMSFs are not required to use SuperStream, including SMSFs that:

• only receive employer contributions from a related-party employer,

• only receive personal contributions from members, or

• do not receive any contributions, for example, the SMSF may have been set up with monies rolled over from an APRAregulated fund, with the members retiring and commencing pensions.

For SMSFs that are required to use SuperStream for employer contributions, the relevant members must provide to their employer the SMSF’s:

• Australian business number (ABN),

• bank account details, and

• electronic service address (ESA).

The ESA is the alias used by the SuperStream message provider to ensure the SuperStream data passes to the correct message recipient. Generally, SMSFs will use the ESA provided by their accountant or administrator and will depend upon the SMSF accounting/administration platform used. Many of the SMSF administration platforms are also message providers and have their own unique ESA. An SMSF that self-prepares and does not use a platform can also obtain an ESA directly from a message provider.

Extending SuperStream for SMSFs

From 1 October, rollovers to and from an SMSF will only be able to be done via SuperStream. Consequently, even where an SMSF will not expect to receive contributions for members from an unrelated employer, it must be SuperStream capable where it has a member who wishes to roll over benefits from another superannuation fund to the SMSF or roll over benefits from the SMSF to another super fund. This will generally be the case where:

• an SMSF is established and member(s) wish to transfer benefits from another fund or funds to the SMSF, or

• an SMSF has been established for some time and has not previously been required to use SuperStream, but from 1 October:

− new members join the fund and wish to roll over their benefits from another superannuation fund. We may see this occurring more often as a consequence of the increase in the maximum number of SMSF members from four to six and the potential introduction of family members, consolidation of multiple family SMSFs or an SMSF with business partners, or

− existing members wish to transfer their benefits out of the SMSF to either another SMSF or an APRA-regulated fund. For example, when there’s been a separation of spouses, business dissolution or dispute between business partners, or member(s) that simply wish to have their own SMSF, or

− the SMSF is winding up, with member benefits being rolled over to an APRAregulated fund.

Given at some stage of its life cycle an SMSF will be required to use SuperStream, it would be prudent to be SuperStream ready from the time of establishment.

While rollovers will be executed via SuperStream, a paper rollover benefits statement form must be provided to the relevant member within 30 days of the rollover payment.

Release authorities

Certain release authorities will also move to SuperStream. These include those concerning excess concessional and nonconcessional contributions, deferred and nondeferred Division 293 tax payments and the First Home Super Saver Scheme. However, SuperStream will not be mandatory for release authorities and for those SMSFs that are not SuperStream capable, they will continue to receive them in paper form.

SuperStream non-compliance

In addition to not being able to effect rollovers without SuperStream, there are also legislation and regulation compliance rules that must be followed.

Superannuation Industry (Supervision) (SIS) regulation 6.34A requires the trustee of a super fund that has received a request to transfer benefits to another superannuation fund to do so as soon as practicable, but in any case, not later than three business days after the trustee received the rollover or transfer request (subject to permitted delays, for example, missing relevant information).

It is important to note the timeline not only applies to trustees of APRA-regulated funds, but also to SMSF trustees. Technically, once the SMSF trustee has received the member rollover request and the relevant rollover information, it has three business days to roll over the monies. Practically, however, this could present some challenges, including:

• bringing the SMSF accounts up to date to determine the rollover value,

• ascertaining whether the SMSF has sufficient cash to effect the rollover and if not, deciding which assets to sell and the impact on remaining members, including consideration of the tax implications,

• the process and time required for the liquidation of selected fund assets to provide the relevant amount of cash for the rollover, and

• implementing a rollover in-specie of

SMSF assets to another fund either in full or partially (Note: in-specie rollovers are an exception to the SuperStream standard and will be managed through a process agreed between the parties).

Non-compliance with the SuperStream standard is a contravention of an operating standard and for an SMSF can result in the imposition of an administrative penalty of 20 penalty units (current monetary value of $4440) per trustee. Given the practical challenges and potential penalty, SMSF trustees, accountants, administrators and advisers may wish to review their processes for rolling a member out of an SMSF, including the wind-up process and the timing of the member’s request to roll their benefits over to another fund.

Where there are SMSF members in dispute, it could be that one party may use these rules and the tight timeline as leverage against another trustee. However, if the member who has made the rollover request remains a trustee/director of the SMSF, they too will have the obligation to comply with the SuperStream rollover requirements. Consequently, they could also be subject to any penalty for non-compliance.

The compulsory rollover and transfer of superannuation benefits rules contained in Division 6.5 of the SIS Regulations, known as the portability standards, did not apply to SMSFs. However, effective from 31 March 2021, the SMSF exclusion no longer applies.

Being SuperStream rollover ready

Of course, an SMSF only needs to be SuperStream capable for rollovers that are expected from 1 October. Individuals who are currently thinking about setting up an SMSF or rolling out of one may want to consider the timing of when any rollovers to or from the SMSF will occur.

To ensure an SMSF is ready for the 1 October start date, trustees and their accountants or administrators should check the following:

• Make sure the SMSF has an active ESA. The fund may already have an ESA, but if no employer contributions have been received by the fund for some time, check with the message provider that it’s still active. An ESA provided by an SMSF administration platform should be active, provided the fund is still being administered on that platform.

• Make sure the ESA includes rollover and release authorities SuperStream services. Not all SMSF message providers will be extending their service to include rollovers and release authorities – check with the provider as to their plans to include these SuperStream services and when they may be available. An SMSF can only have one ESA at a time. Where the SMSF’s current ESA will not include rollover and release authorities messaging services, consider changing to a new ESA that does provide all SuperStream services where future rollovers, in or out, are expected.

• The ATO has been advised of the SMSF’s ESA. If the fund’s ESA has been changed, the ATO record must be updated. An SMSF’s ESA may change due to the current provider not providing rollover and release authorities services or the fund changes administration platforms.

• Where the SMSF’s ESA has been changed, members will need to advise their employer to ensure the correct ESA is used for future employer contributions and associated data sent via SuperStream.

• Ensure the SMSF’s bank account details for the receipt of contributions and rollovers are up to date with the ATO. Where a fund is rolling over benefits to an SMSF, they will be required to verify certain details, including that the SMSF’s bank details provided as part of the rollover request match the bank account details held by the regulator.

• Ensure the SMSF’s trustee/director and member details are up to date with the ATO. Again, these details will be verified by the transferring fund. A mismatch of details will cause a delay to the rollover request.

Where an individual has requested an APRA-regulated fund to roll over their benefits to an SMSF, the APRA-regulated fund will use the new SMSF verification service (SVS) to verify the relevant details. The SMSF member will be notified via text that their details have been accessed.

For an SMSF transferring a member’s benefit out of the fund, prior to executing the roll out it will need to:

• use the SMSF member tax file number (TFN) identity check service (SMSF member TICK) to validate the transferring member’s TFN,

• where rolling over to an APRA-regulated fund – use the fund validation service (FVS) to obtain the receiving fund’s details, for example. bank account details.

The SVS, SMSF member TICK and FVS services are only available through the digital service providers. Consequently, where the fund uses an accountant or administrator that uses a platform with SuperStream functionality, access to these services by the SMSF will require the involvement of the accountant or administrator.

With the potential for an increased flow of SuperStream messages, a firm that has a SuperStream-enabled administration platform and is receiving SuperStream messages should consider a review of their process of instigating, monitoring, disseminating and actioning such messages in the lead-up to the 1 October start date. This would include contacting their SMSF administration platform provider to ascertain when they will be SuperStream rollover ready and what training or learning guide will be provided.