Behind the lodgement statistics – where are the real pain points?
Recent statistics on the lodgement rates for 2019 SMSF returns has resulted in some harsh judgement being directed at tax agents. However, there are a multitude of factors influencing late lodgement.
The ATO recently reported that lodgement rates for 2019 SMSF returns are sitting at just 84%, prompting a flurry of comments from both sides of the fence. There were tax agents (justifiably) feeling overwhelmed by the sudden increase in their workload dating back to the Government’s first major Covid-19 measures in March 2020. And there were auditors and other professional expressing dismay (again quite possibly justifiably) at the prospect of tax agents receiving less scrutiny than auditors and the poor performance of some in the industry.
Even with these factors considered, there’s no doubt that having 16% of 2019 returns still outstanding (some 100,000) is a problem.
It makes the SMSF sector look incompetent and fuels the fire of large fund rhetoric about SMSFs being poorly regulated, sloppy in meeting compliance requirements and generally recalcitrant.
There’s no doubt that some of that will be due to poor performance of tax agents and/or auditors in some, but certainly not all cases.
The Government and the ATO obviously thinks it’s a problem – otherwise the Commissioner wouldn’t have been talking about it for years and the Government wouldn’t be pushing its changes to force financial statements to be prepared 45 days before the lodgement due date.
But does adding more deadlines actually improve outcomes when it comes to lodgements?
In my view no – because the problem doesn’t always lie with professionals not doing their jobs.
Heffron administers nearly 4,000 funds. Over the last 20 years in business, I’ve definitely had times when I’ve not been happy that we’ve done our job well enough. I expect every other tax agent or auditor in the country feels exactly the same way.
Since SMSFs are all we do - the 2018/19 returns are mostly long gone for us. The team has lodged over 22% of our 2019/20 returns but more importantly over 44% of our funds are at a point where there’s nothing further our accounting team needs to do. That huge gap between the two, however, highlights one of our major issues.
No, it’s not our auditors – they are excellent. Only 3% of that 22% gap is waiting for them.
The most significant component of that 22% gap is funds that are currently sitting with our clients – mostly waiting for them to sign the accounts but in some cases we need one last piece of documentation before the audit report can be released. It amazes me how many funds we have sitting at that part of the workflow for weeks or even months. And remember these are funds where all the work has been done.
This is where the ATO’s decision to impose consequences directly on trustees – by removing the fund from Super Fund Lookup and hampering the ability to accept rollovers and superannuation guarantee contributions – was a brilliant one. For the first time, clients who were just dragging their feet experienced a real and immediate consequence, thankfully imposed by someone other than the tax agent or auditor.
In contrast, creating a new artificial deadline (accounts must be prepared 45 days before the lodgement date) has no immediate impact on what a client wants to do. Why on earth would it change client behaviour?
Sure, the ATO can impose administrative penalties and presumably will. But instead of making this change, why not just impose penalties on late lodgers more frequently? In fact, why not issue the penalty as soon as the return is overdue rather than waiting for it to be lodged and then issue penalties that date back to the due date?
Even as a champion of the SMSF industry I see no problem with using sticks rather than carrots to encourage them to take their lodgement obligations seriously and prioritise their SMSF. Afterall, the ATO regulates the entire system via the data it gets from returns – if it does not have it (or consistently receives it very very late) how can we expect them to do a good job?
One challenge with using sticks that hurt tax agents first rather than clients (eg shorter deadlines) is that a completely understandable reaction to recalcitrant clients would be to drop them off a tax agent list. Why have your own performance questioned when you don’t feel you’re the reason a return hasn’t been lodged? To my mind, that would be a disaster of the highest order. The existence of a tax agent in the relationship gives the ATO a much better chance of tracking down those trustees and getting something lodged eventually.
But it’s not all the clients’ fault either.
We’ve done nearly half our funds for the 2019/20 year already and yet we have 130 returns for 2018/19 still outstanding despite doing absolutely everything in our power to lodge these returns.
Behind these lodgement statistics are real people with real challenges. Some are experiencing traumatic family circumstances and not even I would suggest they focus on their SMSF right now. Others face practical impediments to lodging – in one of our funds, both the (individual) trustees died and we’re trying to find someone who can sign the return. In another, the public trustee is now in charge of the member’s financial affairs and can’t/ won’t fill the role of trustee (or allow anyone else to do so). Sometimes there just seems no way through – the ATO already plays a role here in helping with simplified wind ups but I bet there’s more that could be done.
Finally, before judging our SMSF tax agents too harshly let’s remember that most SMSFs are looked after by accountants who provide a great many tax related services to their clients – personal tax, business services as well as their SMSF. Given the economic carnage brought down on small businesses by the Covid-19 pandemic, it seems completely reasonable that from about March 2020 onwards, most tax agents have prioritised critical work like helping clients with JobKeeper applications and reporting. There’s no doubt in my mind this impacted 2019 returns and will have even greater consequences for 2020 returns.
The only firms that have no excuse are those like ours – SMSF specialists with just one job: SMSFs. We’re racing through our lodgements this year and so we should be. Anything less would be unacceptable given our very modest challenges relative to most other tax agents.
Meg Heffron, managing director, Heffron