Auditor flags ECPI concerns with events-based reporting
While the consequences of failing to meet events-based reporting requirements have not been outlined in detail, one SMSF auditor has speculated that failure to comply could impact a fund’s ability to claim ECPI.
Super Auditors director Shelley Banton said the event-based reporting requirements set to commence from 1 July 2018 will be onerous for SMSF trustees and practitioners and there “will certainly be [those] who don’t meet the requirements”.
“It’s not only going to be difficult for advisers to keep on top of this for their own clients, but there are also trustees out there that look after the operation of their fund themselves – they’re also going to be struggling with this,” said Ms Banton.
The ATO has stated previously that from 1 July 2018, all SMSFs will need to report transfer balance credit and debit amounts no more than 10 days after the month in which the event occurs. The commencement of pensions, on the other hand, will need to be reported 28 days after the end of the quarter in which the income stream was commenced.
Ms Banton told SMSF Adviser that at this stage the ATO has not provided a lot of information on what they’re going to do or what their position is if the required reporting doesn’t occur within the time frame.
“Is the ATO going to reject ECPI claims because the fund hasn’t reported that a [member] has gone into pension or they’ve commutated a pension within the [required] time frame,” she said.
In a blog article, Ms Banton explained that regardless of how good the data feeds from the administration platforms are to the ATO’s bulk data exchange channel, SMSF advisers will still be required to kick-start the pension manually.
“Even the best cognitive technology won’t be able to automate the start of a pension,” she said.
“While the optimum time to do this is at the start of the financial year, there may be implications if the deadline is missed or it is not reported at all. It is unknown whether the ATO will disallow a fund’s ECPI claim on that basis,” said Ms Banton.
Events-based reporting could also affect the ability to change the start date of a pension, the opening balance of a pension and shift pension or benefit payments between members.
It will also mean that withdrawals and deposits in error can no longer be treated as an afterthought as contributions and pension payments, she said.
“Given the new requirements to report any debits or credits to a member’s transfer balance cap within a 10-business-day timeframe, the ATO may refuse to accept the fund’s claim to ECPI when there is no real-time reporting of the commutation,” said Ms Banton.
“These issues won’t necessarily be picked up at audit either because ECPI is a tax issue not a SIS-compliance issue. The worst case scenario is that the fund will be qualified on Part A of the audit report because the tax liability is incorrect.”