TBAR a ‘big issue’ for SMSFs in next 12 months

While the ATO is taking an educative and supportive approach in relation to transfer balance account reporting (TBAR) for now, said Mr Itaoui, at some point the ATO will be taking a stricter approach and begin to apply penalties.

Given the significant impact that both the total super balance and transfer balance cap have on what can be done in the fund in terms of contributions, pensions, exempt current pension income, death benefits and other estate planning issues, he said that it is vital that both SMSF practitioners and auditors give them careful consideration.

“The accountant or adviser is responsible for lodging all transfer balance account reports (TBARs) and tracking the member’s total super balance and their transfer balance cap,” he said.

“However, the auditor should still be identifying the total super balance and the transfer balance cap and flagging issues. It can be difficult to do that at the moment, but once the ATO makes all the information available, it will be easier for auditors to access that information and ask accountants to provide that in their workpapers.”

The ATO extended access to transfer balance account report services to all BAS and tax agents this year in a public beta; however, other types of SMSF professionals such as financial advisers are not able to access this information yet.

“I’ve spoken to a lot of auditors that say event-based reporting, the transfer balance cap and total superannuation balance are not their problem. I don’t believe that’s true,” Mr Itaoui said.

He gave an example of an SMSF member with $1 million balance in accumulation in her SMSF and a retail super fund also that had a retirement phase income stream.

“She has fully utilised her transfer balance cap within the retail fund. She then commences an account-based pension with the full balance of her accumulation account on 1 July 2017 in the SMSF,” he explained. “She clearly has an excess amount in retirement phase”

“The auditor, in this situation, should be flagging this when auditing the accounts.”

In this example, the accountant, he said, didn’t know that the retail fund existed because the client probably never mentioned it. There may not have been an adviser involved. Most practices are getting better with identifying these additional amounts, he said, but whilst the profession continues to adjust to the change, there are still plenty slipping through the cracks.

“So, the accountant has commenced an account-based pension in the 2018 year for the SMSF. The fund has claimed or is potentially claiming exempt current pension income without necessarily having the right to do so - the accounts are going to be misstated,” he explained.

“There may also be flow on effects later as well if she attempts to commence further pensions or takes money out of the fund. So, the ramifications of having it structured this way, can be significant, and the auditor, wherever possible, should be flagging this when auditing the accounts.”

If the auditor is reviewing the accounts and signs this all off as okay, this presents an issue, said Mr Itaoui, because the auditor should be referencing the transfer balance cap and they should be able to flag with the accountant that the member has exceeded their transfer balance cap and as a result couldn’t commence the pension in the SMSF.

“The accountant will be appreciative of having the auditor raise that with them, and the accountant shouldn’t perceive the auditor as pointing out mistakes in their work. They're protecting the client and the accountant, and creating the best outcome for all stakeholders.

 “The auditor should be thinking laterally around these issues and thinking about how these changes and caps could be causing issues for the accountant.”

While normally accountants and advisers are across the total super balance and transfer balance cap, there are lots of issues still arising due to variables such as clients not telling them all the information, he said.

“This will happen a lot more, and if the accountant and the auditor are working together, then you should be able to stop these things before they become a much bigger issue and people start to be sued,” he said.