Events-based reporting for SMSFs is coming whether trustees and their advisers are ready for it or not. The ATO has made it very clear of its intent – they want more accurate and up-to-date information on account and pension balances for SMSF members to enable them to administer the new Transfer Balance Account Reporting (TBAR) as well as the Total Superannuation Balance (TSB).
Proposed reporting requirements
|Balance less than $1m||Balance more than $1m|
|Commencement of a new pension||Due date of the SMSF annual return||28 days after the quarter the pension was commenced|
|Full or partial commutation of an existing pension||Due date of the SMSF annual return||28 days after the end of the quarter the commutation event occurred|
|Limited recourse borrowing repayments||Due date of the SMSF annual return||28 days after the quarter in which the repayment was made|
After detailed consultation with the SMSF sector, the ATO has announced that its implementation of SMSF event-based reporting from 1 July 2018 will be limited to those SMSFs with members with total superannuation account balances of $1 million or more.
SMSFs whose members’ total superannuation balances are less than $1 million can choose to report events which impact their members’ transfer balances at the same time that the SMSF lodges its SMSF annual return.
WHEN WILL EVENTS-BASED REPORTING START?
The TBAR regime requires events-based reporting by SMSFs from 1 July 2018, however, SMSFs can commence reporting to the ATO in October 2017.
As of 1 July 2017, the value of each SMSF members Transfer Balance Account will either be nil or the balance of any retirement phase income streams (pensions) as at 30 June 2017. It is extremely important that all SMSFs – especially those with members with pension balances above $1.6m at 30 June 2017 – lodge their 2017 annual returns on time.
PROBLEMS WITH TRADITIONAL ANNUAL IN ARREARS REPORTING
For the majority of SMSFs, their compliance reporting is only addressed annually. A survey by Aaron Dunn of the SMSF Academy in 2014 showed two-thirds – 67.1% – of businesses providing SMSF compliance services did so on an annual basis.
If this statistic holds true today, which I believe it does, the impact of events-based reporting will be significant for all accounting and SMSF administration businesses. They have 12 months to move to quarterly reporting, and then two more years to move to monthly reporting.
The ATO has downplayed the reporting requirements under the TBAR regime, stating they expect the majority of SMSFs to only have to report once – either at 30 June 2017 (with the lodgement of the 2017 SMSF annual return for members who have more than $1.6m in pension) or when the member commences a pension after 1 July 2017. This is an overly optimistic view as there are a number of events that are required to be reported.
The following items are counted as amounts credited against (added to) a members Transfer Balance Account:
- The value of all of a member’s existing retirement phase income streams as at 30 June 2017.
- The commencement value of new superannuation retirement phase income streams commenced on or after 1 July 2017.
- The value of reversionary superannuation income streams as at the time the individual becomes entitled to them. (Note: A modification applies to defer the time at which a credit arises, see below for more information.)
- Where a member has exceeded their transfer balance cap at a time, an amount of notional earnings on the excess amount will apply.
In addition, the following items are debited (removed from) a members Transfer Balance Account:
- The value of any lump sums commuted from a retirement phase income stream (including where the commutation results in a negative transfer balance account value).
- The value of any structured settlement contributions.
- The value of any replenishment debits approved by the ATO.
- The value of a retirement phase income stream that ceased due to failure to comply with the pension and annuity standards or the trustee’s failure to comply with a commutation authority.
It is unlikely that an SMSF member will only ever have one or two events that are required to be reported under the TBAR regime.
Advisers are already implementing strategies to work with the new $1.6 Transfer Balance Account and Total Superannuation Balance benchmark amounts.
For example, where an SMSF pension member needs to draw above their minimum pension for a particular financial year, by treating any amounts over the minimum as partial commutations, the member can effectively ‘top-up’ their pension account in the future by the same amount.
Any strategies developed by SMSF advisers require access to accurate and up-to-date information on member account balances.
Another significant impact of events based reporting is that documents prepared many months (or years) after the events have occurred will no longer be an option – accountants and advisers will not be able to back-date pension commencement and commutation requests to the beginning of a specific period. This will then have a significant impact on the amount of Exempt Current Pension Income (ECPI – i.e. tax-free income) an SMSF can claim.
WHAT OUR BUSINESS IS DOING TO HANDLE EVENTS-BASED REPORTING
Providing advisers with up-to-date and useful information on their clients SMSFs is something very close to our hearts – in fact it’s the whole reason why we exist. We saw a need to empower advisers with information to make a meaningful difference in the lives of their clients.
There are three key areas we focus on to be able to deliver events-based reporting:
We have invested significantly in market leading SMSF technology through being early adopters of Class Super. Wherever possible we leverage the data feeds available direct via Class as well as third-party provided to ensure we are receiving client bank, investment and other transactional information on a daily basis wherever possible. Class has also committed to making electronic TBAR reporting available to users (including us) as soon as possible so we can commence reporting applicable events well before 1 July 2018.
In addition, we’ve also developed (via our in-house software development team) a bespoke Adviser Portal that integrates various best of breed software and assists in communication and tracking of tasks between our administration team and the advisers we work with.
Version 2.0 of our Adviser Portal will be released in October (or early November) 2017 with significant improvements based on feedback from users. Also under development is a client-facing version of the Portal which will both leverage the powerful online reporting of Class Super and provide a mechanism for advisers to seamlessly collaborate with clients regarding their SMSF and non-SMSF portfolios.
All client data is stored in Australia.
The SMSF space is a specialist area and we’ve built up an expert team to support the business we work with. Every adviser who uses our services gets a dedicated Relationship Manager who can assist with technical questions, client strategies, industry best practice or resolve any issues with the delivery of our core SMSF administration services.
As we’ve grown in recent years our team of SMSF administrators and accountant working on client accounts has also been well resourced. When it comes to the implementation of the TBAR regime and events-based reporting, you need to have the ‘numbers on the ground’ to get the work done. We’ve made this investment and will continue to employ and train Australian based accountants and administrators as we grow.
All team members are based in Australia.
Another key part of the puzzle when it comes to delivery of up-to-date information and handle events-based SMSF reporting is having systems in place to enable the work done when needed. We have transactional data rolling through daily for a large majority of SMSFs and we overlay a month review and update by a human to ensure our online reporting is as up to date as possible. We have plans in place to switch this human oversight from monthly to daily for relevant advisers over the coming 12 to 18 months.
Our tight internal systems will make the transition to events-based reporting for the SMSFs we administer seamless as we already have pre-requites in place.
All work is performed in Australia.
It’s time of participants in the SMSF space to grow up. The accountants licensing exemptions have been removed and accountants who want to advise SMSFs must be licenced just like financial advisers and face the strict oversight of ASIC.
Similarly, events-based reporting will force accountants who may only look after a small pool of SMSF clients to either commit the resources required to deliver SMSF services into the future, or get out of the space entirely.
If you are an advice business who is working with accountants who don’t specialise in SMSF and who won’t be able to deliver events-based reporting for your clients, your need to speak to an SMSF administrator who can!