Director IDs a 'silent compliance bomb'

“Even with the best intentions around SMSF compliance, it will be a struggle for the industry to meet the deadline,” the report stated.

The director ID framework was introduced from 1 November 2021 and will impact around 700,000 individuals.

Individuals that became a director before 31 October 2021 have until 30 November this year to obtain a director ID.

Anyone that was appointed a director after 5 April this year was required to apply for a director ID before their appointment.

Class noted in the report that a June 2022, Director ID applications processed surpassed 600,000.

“It is estimated by the government that the industry needs to onboard some 2.7 million directors to this regulatory regime by the end of November 2022. With less than 20 per cent of the directors’ population having Director IDs, we face significant headwinds to comply — whether a corporate SMSF trustee or a director of any company,” the report warned.

“The sooner the government allows professionals such as accountants, financial advisers, tax agents, or ASIC agents to assist directors and corporate trustees to meet the compliance deadline, the sooner the industry can alleviate this compliance issue.”

Commenting within the report, Smarter SMSF chief executive Aaron Dunn said with such a large cohort of corporate trustees within the SMSF industry, including the majority of new establishments using a corporate trustee, the Director ID requirements impose an additional layer of obligations that professionals must be across with their SMSF clients.

“Building new processes into the fund establishment process are important here because you need to understand whether the individual has a Director ID already, whether they are within the transitional period to obtain one (by 30 November 2022) or need to get one prior to their appointment as director,” explained Mr Dunn.

“This is likely to add time onto existing processes, and failure to adhere to the Director ID regulations will lead to penalties ($13,200).”

Mr Dunn said that education will play a critical role in the successful rollout of the director ID requirements.

“Many who need one tend to be older and likely less ‘tech savvy’ — albeit they may have been exposed to technology throughout the last few years during COVID. The role of the practitioner in obtaining this Director ID is limited due to identity obligations in setting up a strong myGovID profile to establish one,” he said.

“Providing in-depth instructions of the various stages — what is required, what roadblocks you might confront and how professionals can help (to an extent) — is all part of a communications rollout.”

Where clients are struggling with obtaining a Director ID digitally, Mr Dunn noted that there is scope to complete the application using a paper form.

“This is a much lengthier process and should be started well in advance of the transition due date for registrations,” he said.

“Assistance could be provided by a professional (i.e. tax agent, ASIC agent, etc) to work through the paperwork.”

It is important to actively monitor the success of your clients who need Director IDs, Mr Dunn stressed.

“This process should also include regular follow-ups with those who haven’t obtained (or provided you) with their Director ID to ensure that they have met the relevant deadlines in order to avoid any penalties for non-compliance,” he said.