Government slammed over actuarial certificate plans
Several industry bodies have raised concerns regarding the government’s proposals to implement an exemption to obtain an actuary certificate, arguing the exemption will lead to manipulation and tax leakage.
Treasury proposes providing an exemption to the requirement to obtain an actuary’s certificate for funds using the proportionate method, that have both pension and accumulation interests, when calculating the exempt current pension and accumulation interests.
Treasury released an exposure draft of Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017 at the end of last year and undertook consultation on the proposed exemption.
Responding to the consultation, the SMSF Association said it is concerned with the policy change because it will be “detrimental to the integrity of the superannuation system and will result in less efficient administration of superannuation funds”.
The SMSF Association submission stated that removing the need for an actuarial certificate will eradicate the independence and integrity achieved from using an external source to calculate a fund’s exempt portion.
“Under the current laws, the requirement to seek an actuarial certificate ensures than an independent professional determines the tax-exempt portion of a superannuation fund’s assets. This ensures that funds are not exploiting the ECPI rules,” it said.
“This is especially important given the sizeable population claiming the ECPI deduction and the significant revenue forgone through the ECPI deduction.”
The move away from actuarial certificates would mean accountants would be required to either calculate the deduction on behalf of trustees or review the trustee’s calculation, the SMSF Association said.
“Further, increased regulatory costs for the ATO may arise as they seek to scrutinise [the] SMSF trustee’s ECPI deduction calculations,” it said.
“In turn, this could lead to an increase in the SMSF levy to fund the ATO’s regulatory activities which would result in the cost being transferred back to SMSFs.”
The SMSF Independent Superannuation Funds Association (SISFA) submission agreed that the exemption seems counter-intuitive to the government’s broader anti-avoidance measures for minimising tax leakage.
“Significant risks to the superannuation system could arise as a result of this proposed policy change. The largely self-regulated SMSF sector is by far the largest sector by asset value in the retirement phase with ECPI claims totalling nearly $19 billion in 2014,” SISFA said.
“This dilution of expertise could present opportunities for funds to manipulate the ECPI provisions to increase the size of ECPI deductions, causing revenue leakage for government.”
SISFA said it is concerned that the change in rules could propagate tax schemes with “the intent of artificially inflating ECPI deductions to reduce the tax on superannuation fund income”.
The Actuaries Institute submission said while the largest SMSF administrators in the sector do have the capacity to build the expertise and judgement in-house, the smaller operators may not.
“It is foreseeable that a significant number of ECPI calculations for unsegregated SMSFs will be prepared and audited by individuals both of whom have very limited expertise in this area and are unlikely to recognise circumstances in which a more sophisticated calculation methodology is required,” its submission said.
“The government can attempt to address this risk by having the ATO issue very detailed guidance and increase its audit activity, both of which will involve additional costs.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.