After many, many hours of consultation and discussion, the Minister for Superannuation and Financial Services, Bill Shorten, is now in receipt of a paper from the Stronger Super peak consultative group, headed by Paul Costello, summarising its findings. It seems we are nearing the end of an extensive process.
Through its participation in the Stronger Super dialogue, SPAA has focused on opportunities to reduce risk, maintain confidence and increase the efficiency of the entire $1.4 trillion super system, with a close eye on maintaining flexibility and reducing red tape for self-managed super fund (SMSF) professionals and trustees.
We have been pleased with the outcomes to date and feel the SMSF sector’s interests have been protected in nearly all matters with only a few concerns remaining – the treatment of off-market transfers, market valuations and auditor registration.
Regarding off-market transfers, some corners of the industry support the Cooper recommendation, believing transfers between related parties within SMSFs should always occur through an existing market to remove any opportunities to manipulate buy and sell details in an effort to reduce capital gains tax or excess contributions tax obligations. We argue this change would create an uneven playing field where APRA-regulated funds, which do not have the same obligations, would be advantaged. And so we oppose the proposed requirement for transfers to be conducted on a market, where one exists, because it poses transaction risks and increased costs for SMSFs.
To address the concerns being raised by the proposed regulation, SPAA has developed a best practice guideline for off-market transfers as a more effective means of reducing the potential risk of price and date manipulation. These guidelines include a recommendation that SIS regulations be amended to require SMSF trustees to forward completed off-market trans- fer forms to the relevant registry within five business days. We also recommend that the approved auditor be required to confirm the date and price of any such transfers and that the notification period has been adhered to.
SPAA supports SMSF auditor registration through ASIC as we believe it is a great opportunity to lift standards in the sector. However, we need to ensure the registration process is not too costly or so onerous that it discourages auditors from participating in the sector.
SPAA believes current SMSF auditors who are undertaking SMSF audits regularly should not be required to pass a competency exam as a condition of ASIC registration. Such an entry-level exam would do little to increase overall professional standards and would mean additional cost burdens in an area which, for many firms, is a marginally profitable component of their business.
While off-market transfers and auditor registrations have been contentious, there were other issues where solutions have been endorsed but guidance on practical application is still required. The first proposal is the ATO’s powers to impose penalties under a newly developed framework based on the Tax Administration Act 1953.
The penalty will be determined on a prescriptive basis and taking into account the seriousness of the contravention while the remission of any penalties may be determined by the behaviour leading to the breach. Importantly, the trustee of the fund and not the fund will be liable for the penalty and will provide the ATO a remedy different from labelling an SMSF as non-complying. But the details of how this prescriptive test will interact with current practice are yet to be seen.
SPAA is also seeking guidance on valuation requirements. While it was agreed the frequency of valuations should be dependent on the type of assets held by the SMSF and it was generally agreed SMSFs should be required to value assets annually, SPAA is concerned that regulations requiring trustees to obtain independent valuations annually have the capacity to significantly increase costs, particularly for pension funds. The ATO is expected to further consult with industry to develop valuation guidelines consistent with the Stronger Super guidelines.
Despite there being contentious issues and further guidance required, the role of the growing SMSF sector has been recognised during the Stronger Super process and a majority of the proposals outlined during the consultations have been endorsed.
Andrea Slattery is the chief executive officer of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA). She was a member of the Peak Group consultative committee.
