The Government’s has given more detail on its proposal for a three-year SMSF audit cycle, which was announced in the 2018 Budget.
“This change will reduce the compliance burden for funds that have a history of good behaviour and have relatively simple affairs,” said Minister for Revenue and Financial Services Kelly O’Dwyer, releasing a discussion paper for consultation.
“The objective is to incentivise good SMSF record-keeping and compliance by alleviating the regulatory burden whilst maintaining optimal system oversight and integrity,” said Minister O’Dwyer.
“We have listened to initial stakeholder feedback on the Budget announcement and welcome further feedback to ensure this change is appropriately targeted and implemented.”
The discussion paper released says: “The Government recognises that self-managed superannuation fund (SMSF) trustees appropriately face a number of regulatory requirements in administering their funds. However, the Government is committed to reducing red tape and compliance burden for SMSF trustees where suitable.”
It is proposed that SMSFs with a good record of lodgement and compliance will have the option of changing to a three-yearly audit cycle – with Treasury expecting “many” of eligible funds to choose the longer audit cycle. Treasury proposes that SMSFs will self-assess their eligibility.
“Under this measure, audits conducted for SMSFs on a three-yearly audit cycle will cover all of the three preceding years, maintaining integrity within the SMSF sector. SMSFs that do not meet the eligibility criteria will not be eligible for a three-yearly audit cycle and will continue to be annually audited,” says Treasury in the discussion paper.
Though there may be events which cause such a “material change” that an SMSF will need an audit within the three years, such as the death of a member, the commencement of a pension for a member for the first time, establishing an LRBA or a related party transaction.
“If a key event falls in a year when a SMSF is not otherwise required to be audited, the SMSF will be required to obtain an audit before submitting that year’s SAR [SMSF Annual Return]. An audit conducted due to a key event will be required to cover all financial years since the SMSF’s last audit.”
The discussion paper says a three-yearly audit cycle will reduce the compliance burden on SMSFs, while maintaining oversight, potentially reduce costs and provide an incentive for SMSF to lodge Annual Returns on time.
However stakeholders have seemingly been concerned that a three-year audit cycle could increase non-compliance and cause issues for the SMSF audit industry. The discussion paper says these concerns will be ” mitigated by appropriate eligibility criteria and, if necessary, transitional arrangements”.
Included in the consultation questions asked in the discussion paper are:
- How are audit costs and fees expected to change for SMSF trustees that move to three-yearly audit cycles?
- What should be considered a key event for a SMSF that would trigger the need for an audit report in that year? Which events present the most significant compliance risks?
- Should arrangements be put in place to manage transition to three-yearly audits for some SMSFs? If so, what metric should be used to stagger the introduction of the measure?
Submissions on the discussion paper are open until 31 August 2018.
SMSF Association welcomes extended consultation
The Government’s proposal has raised concerns among members of the SMSF Association, which welcomed the consultation on the discussion paper.
“The fact Treasury has listened to our concerns and agreed to have extended consultations on the policy detail instead of moving straight to consultation on draft legislation is very pleasing,” said SMSF Association Head of Policy Jordan George.
“This eight-week consultation period will provide an excellent opportunity for the SMSF sector to provide Treasury with detailed feedback on this important policy shift,” he said.
“Our audit members have also conveyed their strong concerns regarding the proposal’s potential negative impact on the integrity of the SMSF sector, which is always of paramount concern to the Association, how it will affect audit workflows, and whether it will reduce costs for SMSFs. These are all important issues to work through during this consultation process.”
“We look forward to consulting with our members and Treasury on this critical issue to ensure the end result is the best policy outcome for the SMSF sector.”