SuperStream failures pose ‘liability risk’ for SMSF professionals

Given that many SMSFs do not maintain their financial statements on a real-time accounting basis, DBA Lawyers director Daniel Butler said this might be a hurdle for many SMSFs.

“SMSFs will therefore generally need to prepare interim financial statements or special accounting records so that a reasonably accurate rollover amount can be determined quickly that reflects an allocation of net earnings (or net losses) and movement in capital values adjusted for tax, etc, up to the time of the actual payment of the rollover,” Mr Butler explained.

Mr Butler said this could involve considerable time and is unlikely to be completed within a three-day time frame.

“It takes significant time to gather the relevant information, arrange for the accountant to prepare the information and then to obtain trustee feedback. Accordingly, many SMSFs will need to plan ahead for a rollover to ensure the relevant work can be prepared in a timely manner,” he explained.

This may be difficult in certain circumstances, Mr Butler acknowledged, such as separating spouses or a rift between a parent and a child who is a member of the same fund or dispute with another member.

“On the other hand, partial rollovers are generally easier to manage where the amount rolled over is well within the member’s account balance and sufficient liquidity and cash flow in the fund exists,” he noted.

“However, this also assumes the fund has sound records of the members tax free and taxable components, cost base and current market value records for each asset [and] eligible service dates.”

Mr Butler reminded SMSF professionals that failure to comply with the SuperStream standards could easily result in an auditor contravention report (ACR) that may result in a significant penalty.

“In particular, if a trustee fails to comply with the rules in Division 6.5 of the SISR, this is a contravention of the ‘payment standards’ in Part 6 of the SISR, in particular reg 6.17. As reg 6.17 is a reportable contravention, auditors will need to obtain sufficient appropriate audit evidence to form an opinion on whether the fund has complied with the rules in Division 6.5,” he said.

The ATO requests that where the SMSF is the transferring fund of a rollover, auditors, he said, must obtain evidence confirming:

• The SMSF received the rollover request (which would have come from either the member, the receiving fund or the ATO) that was made via SuperStream; and
• The rollover occurred no later than three business days after receiving all the information required to process the request.

Where the SMSF is the receiving fund of a rollover, auditors need to obtain evidence confirming:

• Where the rollover request was received by the SMSF directly from the member, the SMSF trustee has used SuperStream to request the rollover from the transferring fund (e.g. a printout from the trustee’s software provider); and
• The rollover was allocated to the member within three business days after it was received, and all information was received to enable it to occur.

Where an auditor identifies non-compliance with the rules in Division 6.5 of the SISR, Mr Butler said the ATO requires the auditor to notify the fund in writing, report the contravention to the ATO via an ACR and modify Part B of the SMSF Independent Auditor’s Report if the contravention is material.

An SMSF trustee and anyone involved in a contravention of the Superannuation Industry (Supervision) Act and SISR, including an adviser, he warned, may be liable if a rollover is not undertaken in compliance with the SISA or SISR, which includes the SuperStream standards.

“Most SMSF deeds require compliance with the SISA and SISR and such a contravention may also result in the trustee and, in the case of a corporate trustee, also its directors being exposed to personal liability,” Mr Butler cautioned.

“One risk in this regard relates to the strict time limits that apply to rollovers. For example, if a member’s account balance decreases (for example due to an overall market fall) after a rollover request is made and a rollover is not paid within the prescribed time period, the departing member may feel others have contributed to this decrease and seek recovery from the trustee, its directors and anyone else involved in relation to that loss.”

Mr Butler stated that the SuperStream rollover rules were designed for large APRA funds and have then been imposed on SMSFs without much consideration for the circumstances of SMSFs.

“Many accountants expect months to prepare a set of draft accounts these days. However, some funds maintained on real time systems and data feeds may be better placed to at least have a chance of satisfying the three business day deadline,” he said.

“This places SMSF trustees and advisers at a real risk of ATO scrutiny and incurring significant additional costs in undertaking a rollover if they fail or overlook the three day deadline.”