SMSFs to see increasing value in regular reporting for compliance requirements

“Current SMSF regulations require annual reports be made to either a regulator or member. We know these as an annual tax and regulatory return or annual member statements. They outline fund balances and entitlements at the end of the financial year,” Mr La Greca said.

There are other reporting obligations, however, that tend to be relatively minimal and are driven by specific events. Transfer balance cap reporting, for example, is important when pension members start a pension or take a lump-sum benefit from a pension account. 

“These reports are required on an ad hoc basis but are, nevertheless, important and penalties can apply when deadlines are not met,” Mr La Greca said.

Mr La Greca noted that, invariably, most SMSF members will have started in an APRA-regulated fund. These funds work on a far more regular reporting cycle. Specifically, APRA funds report to regulators, both APRA and the ATO, every 10 working days and detailed statistical information on a quarterly cycle. 

“In most cases, APRA funds also provide additional member reporting daily including member balances, transactions and investment values,” he said.

“Members often move from an APRA fund to an SMSF for greater control and may wish to have access to information at the same frequency they had previously.”

With evolving technology and data feeds, it is now possible, through the use of sophisticated software and administration services, for SMSFs to have and provide information to their members on the same basis as APRA funds, according to Mr La Greca. This requires the electronic transfer of data to be uploaded and verified to ensure both the member records and investment values are up to date.

There are three types of data feeds: valuations, documents and transactional information. Each has a specific purpose, but together, they allow for information to be kept up to date and accurate. 

There is also a limit to the types of transactions that can be made and each transaction should be able to be matched to supporting documentation whether digital or scanned.

“SMSFs allow only four types of deposits: contribution, rollover, investment income or proceeds from the disposal of an asset. Similarly, debits come in four types: expenses, lump—sum benefit payments, pension payments or purchase of investments. Each type of transaction will have specific supporting information,” he noted.

“Of course, to a large extent, this process is not yet fully automated in terms of matching document information to transactions. 

“With the development of artificial intelligence, document scanning and smart reading, however, we will see increased processing times and accuracy. This will allow for a timelier transaction process, providing members with up-to-date information.”

Meeting future compliance outcomes  

With the need to meet increasingly demanding compliance processes, Mr La Greca noted that pro-action is always more favourable than reaction, and timely information allows SMSFs to monitor compliance rather than report. 

“Compliance reporting occurs when the event happened in the past, such is the case with traditional, annual in arrears administration services. Transactions are not monitored, and problematic actions are not identified until the end of the financial year. Regular reporting allows for these transactions to be picked up and rectified quickly,” he said.

This can also include providing members with up-to-date and accurate information, enabling better decision-making. Members can avoid tax penalties associated with not satisfying total superannuation balances, contribution caps, transfer balance caps and pension limits.

“There is a multiplicity of contribution rules such as bring forward non-concessional, carry-forward concessional and recent retiree, all of which depend on a member’s TSB. Tracking both the TSB and contributions simplifies year-end contribution planning,” he continued.

“For pension members, there are similar considerations, the first of which is ensuring the minimum pension level for the financial year has been met. The consequences of not doing so include tax penalties. 

“Pension members should also be able to identify when they have reached their minimum pension level so that they can consider what extra withdrawals to take and how to treat them. 

“Knowing how much a member has started in a pension is pivotal in determining whether or not they have the capacity to start additional pensions in the future which could come about through the death of another member.”

While ultimately the ATO is the repository of all information relating to total super balances, contribution caps and transfer balance accounts, it is not always accurate due to the cycle of reporting for SMSFs, according to Mr La Greca. It is, therefore, important to keep all SMSF records up to date. 

“This allows a member to use a combination of both ATO data and SMSF data when determining their capacity to either make contributions or commence additional pensions,” he explained.

“Of course, this will also enable advisers and accountants to assist their clients in monitoring these key thresholds. The plans that derive from this can ensure that clients maximise their retirement savings and avoid negative outcomes.”

In considering the future landscape, Mr La Greca said one thing that needs to be recognised is that the SMSF sector is a key element and a significant player in Australia’s retirement saving system. 

It represents over a quarter of all superannuation monies yet is the sector that provides information to regulatory and government bodies on the slowest (almost a year after the fact) and least frequent (annual) cycle. 

“It is unlikely that this trend will continue forever, as SMSFs continue to play such a large role in the system. It could be expected that more frequent reporting will become necessary and this will require more sophisticated administration systems,” he said.

“We are already seeing this play out from October 2020 with the movement of rollovers and some release authorities to an all-electronic structure via SuperStream.”