In September this year, Hayes Knight reported that out of the audits it had received for the 2016/17 financial year, there were errors in around 70 per cent, which were all related to the incorrect implementation of the CGT transitional rules.
Speaking to SMSF Adviser, Hayes Knight director of SMSF services, Ray Itaoui said the rate of errors with the application of the CGT relief “hasn’t really decreased” since then.
“We’re still seeing a lot of errors where CGT relief is being applied incorrectly,” he said.
Mr Itaoui warned this could have ramifications for the profession in future years if these mistakes aren’t picked up now.
“If the auditors aren’t picking this up and the accountants aren’t picking it up, then when [the return] gets lodged the issue sits there. In a couple of years’ time, if a trustee changes accountants or they sell an asset, things come to a head. These issues are potential legal problems in the future and trustees will look to lay blame. The accountants will be blamed and the accountant will blame the auditor,” he warned.
“It’s a silent issue that is likely to spill over in a few years’ time.”
Some of the common mistakes he said are the wrong date being used for the CGT relief and the failure to apply for an actuarial certificate where one is required.
“I think it is due in part to the complexity of the legislation. There are a lot of unintended consequences from the legislation, which have been causing little holes and little traps, that advisers will fall into,” he explained.
Firms with a smaller number of SMSF clients in particular are struggling to apply the CGT relief correctly, he said.
“For a public practitioner who works across ten or 15 super funds, its difficult for them to be across all the ins and outs of the legislation when maybe one of their 15 clients might be affected. They just don’t deal with the issues enough to be across it,” he said.
However, larger firms have also made mistakes in this area, he warned.
While the use of SMSF software has placed firms in a better position to deal with the CGT relief, he said, even with the software, issues can still arise where the input is incorrect.
“It can really only do what you tell it to do. If the input is not correct, then the software doesn’t know. It’s not smart enough to catch the problems,” he said.
“We’ve had numerous experiences where the information processed by our team has been identified in the review stage as incorrect, because the system doesn’t understand what’s happening with pensions and commutations. It can really only look at it from a systematic point of view, without understanding the legislation.”
Good article. Software won’t solve the issue. Administrators need experienced SMSF staff to get this right. There needs to be a rigorous review process in place.
The legislation is not simple & the industry had less than 12 months to work through its intracacies.
I fear for those administrators that utilise overseas processing solutions.