CA ANZ outlines top challenges for SMSF professionals in 2023

Late lodgement of SMSF returns

Mr Negline said with the late lodgement of annual returns still an ongoing issue in the SMSF sector, it’s likely the ATO will continue to home in on funds with outstanding returns in 2023.

“Some funds are obviously a little bit behind on their lodgement for a variety of reasons and I think the ATO is fairly keen to hear from trustees in regards to whether they still want to be part of the regulated population,” Mr Negline warned.

ATO assistant commissioner, SMSF risk and strategy, Justin Micale said in October that there were 24,000 SMSFs in total who hadn’t lodged their first return and a further 80,000 lapsed lodgers with one or more outstanding returns.

Mr Micale noted that the number of funds that fail to lodge their first annual return has also grown significantly from 7 per cent in the 2016 financial year to over 20 per cent in the 2021 financial year.

The ATO ramped up its activity in this area in the weeks leading up to Christmas by contacting trustees and their practitioners in regards to outstanding SMSF returns, according to mid-tier firm BDO.

BDO national leader, superannuation Paul Rafton said in some cases the ATO has been expecting a response from trustees about what they intend to do within two business days.

SuperStream

The adoption of SuperStream for SMSF rollovers — which first became mandatory in October 2021 — has been a significant challenge for the SMSF industry throughout 2022 and it’s likely this will continue into 2023, said Mr Negline.

“It’s taken a while for that to be bedded down but we would like to see a situation where hopefully in 12 months’ time it’s settled down,” he said. 

There has been a wide range of issues impacting the efficiency of the system including the lack of information provided where a rollover request has failed.

The SMSF Association and ATO have been working with APRA-regulated funds to resolve this issue so that where a message fails, issues can be more easily identified and fixed.

Indexation of the caps and potential policy changes

Mr Negline said advisers and accountants may also need to prepare for increases in the contribution caps and the general transfer balance cap this year.

Based on the current levels of inflation, it’s almost certain that the general transfer balance cap will increase from July next year, which may create further complexity for SMSF professionals and their clients.

Indexation for the general transfer balance cap is based on the CPI figure for the December quarter. The current CPI figures are already high enough to result in the transfer balance cap going up by $100,000 from 1 July next year.

Speaking in a recent FirstTech Podcast, Colonial First State senior technical manager Tim Sanderson said it’s possible that the general transfer balance cap could be lifted as much as $200,000.

Mr Sanderson said this may have implications for clients planning to commence a pension before July.

“If you’ve got a client with significant super savings that is getting to the point where they’re thinking about retiring in the first half of next year, then one thing they could consider doing is delaying the commencement of their first retirement phase income stream until 1 July or shortly after,” he explained.

He noted that for clients with lower balances that are nowhere near the $1.7 million, there would be less point in delaying the commencement of the income stream in those circumstances.

Given the government’s comments regarding the introduction of a maximum limit on what can be held in super, Mr Negline said it’s likely there will also be further legislative changes on the horizon.

In early November, Minister for Financial Services Stephen Jones said the government would be exploring the idea of introducing a cap on balances for super and other taxation issues in super once an objective for super had been set.

Speaking at a CA ANZ conference in October, Mr Negline said if the government does proceed with this proposal there will be a wide range of issues to be worked out including whether members will be able to add more into super where there have been negative fluctuations in the market.

Licensing and advice issues

Depending on the government response to the final Quality of Advice Review (QAR) report, SMSF professionals may also see the outcomes of the review start to flow through next year.

With the report now complete and handed to the government, Mr Negline said the government will now have the difficult job of responding to the final recommendations and balancing the competing interests of different groups.

“The government will have to weave its way between those who want a free rein and those who want a much tighter regulatory environment,” he said.

With the current regulatory framework around advice for retail clients now “unbelievably complicated”, Mr Negline said that one of the things CA ANZ would like to see from the review is a “root and branch review of the regulatory rules applying to retail clients for advice”.

Given that the regulatory requirements for wholesale clients are much simpler, some advisers are now providing advice to wholesale clients only as a way of circumventing some of the onerous requirements for retail clients, he said.

“The regulatory structure is so much lighter [for wholesale investors] and hence the cost of providing advice is so much lower,” he noted.

“As a result, there’s a large number of people who are not getting advice who may benefit from it.”

Mr Negline said he expects this will continue to be an issue in 2023 until the regulatory settings for retail advice clients is reviewed.

CA ANZ has also flagged concerns about proposals in the Quality of Advice Review to allow larger providers such as banks and super funds to provide advice given the outcomes of this in the past.

“We’re keeping an open mind about it but we’d like to see the regulatory structure in terms of how that’s going to work,” he said.

“It will be up to the government to decide whether or not it wants to proceed with that.”