Superannuation director at the ATO Howard Dickinson said it is clear the profession is not entirely on board with either of the models the tax office put forward in its position paper on events based reporting, which you can read more about here.
As a result, in the coming weeks, the ATO is likely to provide further concessions to those SMSF members who are not at high risk of exceeding the transfer balance limit.
“If I give you a hint as to how that concession looks – what we are considering is providing further concessions in relation to those members whose balances are significantly below the 1.6 million cap,” Mr Dickinson said at the SMSF Summit in Adelaide last week.
“However, as you know, your members often have multiple accounts, in multiple different locations. So there are going to be some members where we allow this concession for their SMSF, who may find themselves negatively impacted, because of their balances and other elements of the system,” he said.
“We will not be able to warn them because we will not have access to their information in a timely enough manner to do so, which is the intent for us getting the data accurately and in a timely way. That’ll be an issue for those trustees, and indeed, the professionals who support them,” he said.
This concession is in line with suggestions made by industry associations, including the Institute of Public Accountants, and stakeholders like software providers.
Events-based reporting has touched a nerve in the SMSF industry, with many professionals on the ground sceptical about whether the regime will work in practice.
Aquila Super partner, Chris Levy, previously told SMSF Adviser the government is out of step with how professionals work in practice on this particular item.
“There’s this tremendous disconnect between what a couple of, almost academics, within Treasury think about how the superannuation system works or how SMSFs work. What happens in the real world is quite different,” Mr Levy said.
The response from the industry to the position paper was also substantial.
“We issued the position paper and got 170 responses. It blew out the ATO’s processes, we expected to get 10 or 20,” Mr Dickinson said.
Let’s be honest. This is all about back-dating of pension commencements to 1 July, based on contributions up to the previous 30 June that we are talking about.
Most SMSF members on account based pensions still pass the work test and contribute. Those contributions less tax plus earnings as at 30 June 2017 are converted to another pension at 1 July, to maximise the tax free earnings of the fund going forward. While under $1.6M, that is still an advantage.
The problem is that SMSFs typically can only quantify the accumulation balance when financial statements are prepared, up to 9 months after 1 July.
The ATO & industry need to stop dancing around the real issue.
Until now it may have been possible to rely on a standing member/trustee resolution as at 1 July to achieve this, but not now as you have to report the figures by 1 July + 10 business days. Not even quarterly reporting solves this issue effectively.
Granting of any further concession only promotes back dating, which the ATO says is illegal.
The SMSF industry is going to have to adapt to working from benefit estimates when starting a pension, like big funds do.
Lawyers need to make sure SMSF trust deeds specifically allow benefit estimates, e.g. by specifying an interim earning rate. This flexibility seems to have slipped from many trust deeds over the years.