3 year SMSF audit cycle – has time run out to pass legislation?

Nest egg, superannuaiton, SMSF, retirement
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Time has likely run out for the Government to pass it’s proposed 3 year audits for some SMSFs.

A Bill to implement the measure, which was announced in the 2018/19 Budget, has not been introduced to Parliament and there now likely isn’t time before the election.

Under the Government’s proposal, SMSFs with a good lodgment and compliance history would be allowed to only be audited every three years instead of every year. But this three year audit cycle would still cover each of the three years – leading to concerns that it could actually increase audit costs, while also letting compliance issues linger.

Starting in July 2018 the Government conducted a consultation process on a discussion paper for three year SMSF audits. There has not, publicly, been a follow-up to the consultation, and it hasn’t led to consultation on draft legislation – the usual next step in the policy process. Though other superannuation legislation was recently introduced which hadn’t been subject to any public consultation.

Even if a Bill to implement 3 year SMSF audits was ready there is likely not enough sitting days scheduled ahead on an expected May election to pass the measure – there are only two Senate sitting days scheduled before May, and Bills from the Budget will need to be passed.

Earlier in February the Government introduced to Parliament a Bill to implement its proposal to increase the maximum number of SMSF members from four to six. This measure was announced alongside the 3 year SMSF audit cycle. Speaking at the SMSF Association National Conference, Assistant Treasurer Stuart Robert said increasing the SMSF member cap was “widely supported”. He did not mention the SMSF audit policy.

Peter Burgess, General Manager of Education and Technical Services with SuperConcepts, says that the Government has run out of time to pass the “controversial” SMSF audit measure before the election.

“Given there has been no legislation introduced into Parliament or even draft legislation released for comment, the government is clearly running out of time, and I would argue has now run out of time, to get this measure introduced and passed before the election is called,” he said.

“Any Bills introduced into parliament but not passed by the time the election is called will lapse and will then need to be re-introduced into the new parliament.”

If Labor wins the election, as the polls suggest is likely, the measure may be dropped.

“I don’t think this is a measure which a new Labor government would be inclined to introduce – or at least you wouldn’t think it would be a priority for an incoming government,” Burgess said.

“So the likelihood of 3 yearly audit cycles being introduced for SMSFs now appears dependent on the Coalition being re-elected.”

The proposal has proved unpopular with many industry groups. Professional bodies have argued that any benefits are not worth the risks. There are concerns that compliance issues will continue for longer without being identified, and that having more time between events and the audit could push up costs.

“The vast majority of the SMSF sector does not support this particular change because we simply don’t believe the benefits of lower compliance cost and red tape will be realised – instead we will see an increase in the number of SMSFs breaching the rules and a reduction in the number of audit firms specialising in this area leading to lower quality audits,” Burgess said.

He was also critical of the idea, contained in the Treasury discussion paper on the measure, that SMSFs eligible for 3 year audits would still need to be audited for a single year if there was a ‘key event’.

“The idea was to reduce the likelihood of compliance breaches by identifying as many events as possible that would put the SMSF at a higher risk of breaching the rules and therefore should be audited in that income year. The problem is it would be a self-assessment regime so it would be up to the SMSF trustees to identify whether or not one of these particular events has occurred.”

This article has been updated since publication to include comments by the Assistant Treasurer.

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