Well if we’re reviewing reporting requirements…

15 Nov 2021

Meg Heffron

Managing Director

The ATO regularly consults with industry on changes before making them – which is a great approach and much appreciated by all who participate. In the interests of transparency they also let us all know exactly what they’re consulting on at the moment and you can read about everything here

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At the moment, one of those topics is “To seek feedback on moving to a single transfer balance cap events-based reporting framework for all self-managed superannuation funds”. In other words, do away with the two speed reporting regime – one for “annual reporters” and one for “quarterly reporters”.

In the same spirit of transparency, I should say up front that I’ve participated in this consultation and my view is that having a single set of deadlines for all SMSFs makes perfect sense. Remember that right now, most SMSFs are “quarterly reporters”. Only those where all members had total super balances of less than $1m at the 30 June immediately before their first reporting event are “annual reporters”. (And being an annual reporter means that they can report the most common TBAR events such as starting or commuting pensions when they lodge their annual return rather than shortly after the end of the quarter). 

Even at the time this special concession was made, it was talked about as a stepping stone to help SMSFs adjust to a new reporting regime.

So while no-one likes reporting that is brought forward, I suggest we all just get on board with this.

But I would like the ATO to also think a little more imaginatively about the whole issue of reporting while they’re at it.

Specifically, I’d like to explore what it really means to report an “accurate” value for the commencement of a pension.

For transfer balance account purposes, the value to be reported when a pension starts is the “value on the starting day of the superannuation interest that supports the superannuation income stream”. That value is defined as the total lump sum that could be paid from the interest at the time.  In a public offer fund, that figure is very transparent. And because it’s quoted precisely in dollars and cents, we assume it’s incredibly accurate. But of course it’s not. Just like an SMSF, there’s no way a public offer fund values absolutely every asset and liability every day. Estimates are made, supported by strong process and logic but they are estimates just the same.

The big difference between a public offer fund and an SMSF is that in the public offer world, no-one goes back over the books and adjusts the amount reported for the commencement of the pension once all the tax provisions are correctly tallied, etc. In other words, no-one ever updates the estimate. If every single member of a public offer fund commenced a pension on 1 July 2021, I’ll bet the total amounts reported across the fund as a whole would not conveniently add up (exactly) to the value of the fund shown on its 30 June 2021 audited accounts.

And that makes perfect sense! What is the use of doing that months after the event? And the estimate was actually the “correct” number in the first place. If an individual member had asked for their full balance as a lump sum, it’s the estimate that would have been paid, not some notional amount calculated retrospectively once all the things that were unknown at that date are known for sure.

So why do we hold ourselves to a higher standard in SMSFs?

Why do we assume that there is a dollar perfect correct amount that represents the member’s pension balance on the date it starts? And why do we insist on going back and exactly matching our TBAR figures with the audited accounts?

If we ran SMSFs like public offer funds, pension commencement amounts would always be estimates. And these estimates would never be updated. And that would make quarterly reporting a breeze. So rather than getting up in arms about potential changes to the frequency of reporting, let’s have this discussion. Let’s legitimise (with guidelines if really necessary) the use of well supported estimates as the real figures for reporting just like a public fund would.

I wonder if the ATO is even quite comfortable with that and it’s those of us on the industry side of the fence that are hesitating. In their guidance on TBA reporting, the ATO even says “If the trustee has used a reasonable estimate and the value of that income stream significantly changes, the trustee may correct the value initially reported to us.” Perhaps we should place more emphasis on the word “significantly” and only adjust the reporting after the fact if it really is a material change.

That’s something it would be good to get on the table.


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