The regulators’ SMSF focus

Three of the main regulatory bodies, ATO, ASIC and the Tax Practitioners Board, discuss their priorities and surveillance areas for self-managed super funds at the SMSF Association's national conference in Adelaide

Facilitator: Andrea Slattery, chief executive, SMSF Association: It's fantastic for our industry to hear from the heads of our regulators, and to learn what the regulatory bodies are doing and how they're interacting together. We have the chance to hear their views about the future and also to learn about all the things that are causing them some grief. So we really appreciate the three of you being here today.

On that note, Chris, what are some of the priorities for the ATO this year?

Chris Jordan, commissioner of taxation, ATO: We have lots of priorities, of course. I'll try not to dominate the whole session – but I could talk for quite a long time, because we are at a critical stage at the ATO.

We're very focused on the reinvention program that we launched about 18 months ago, our blueprint for change. This includes SMSFs as one of the segments of our market place. The program sets out our plans for how we can build confidence and trust in the system, as a tax administrator and as a regulator.

At the ATO, our mission is to contribute to the economic and social wellbeing of Australians through fostering willing participation in the tax and superannuation system. The words 'willing participation' or 'voluntary compliance' are fundamentally important to us. They are driven by two main things. The easier you make it for people to comply, the more likely they are to do so. Clearer guidance that is easier to understand will help people to get through a complex system. Tax and superannuation are complex and our system isn't going to change overnight. How can we provide the clearest pathway for people to make their way through with their regulatory burdens?

The second driver is that the more confidence people have in the integrity of the system, the more likely they are to comply. In other words, if someone thinks that everyone else is complying, they are more likely to comply themselves. When you read about all these foreign multinational companies that perhaps aren't paying the right amount, that pulls in a different direction from what we're trying to do to assure people that we are across these issues. That's a fundamental aspect for us.

The basics of this reinvention are about improving the client experience. We want to provide better information, with guidance that is easy to access and, most importantly, easy to understand. We're getting away from these long, detailed legal things. We also want to make our guidance specific. So for SMSF advisers and professionals, how do we provide clear, quick and relevant guidance? We need to do things like make the registration and wind-up process easier. We need to have earlier engagement. There's no point taking people to court and penalising them; you're much better to get people on the right track from the beginning.

In terms of other issues, we have focused on related party transactions, and on investments that include the inappropriate use of assets, such as lending money to related entities. I sometimes don't understand this. Do people just not fully comprehend that the assets of the super fund are not their assets to play with? Or do they do it on purpose?

There's also the issue of diverting personal services income into SMSFs. We also continue to have a look closely at limited recourse borrowing to make sure it's done properly, as well correcting tax payments from funds and arrangements that are clearly designed to funnel income into the fund.

AS: Chris, you've set up two new bodies. One is a consultative group that is executive and high level, and the other covers the technical issues as well. You should be congratulated on that, particularly because you've invited every one of the other regulators and the Treasury to participate. They're the only forums where all the regulators and the Treasury come together in a room four times a year to discuss issues. It's just one of the ways the regulators are working together.

Greg Tanzer, commissioner, ASIC: You touch on a really important point. It's not just an issue for the agencies sitting here, but across public sectors more generally. Particularly in this taxation and superannuation area, there is a much stronger connection between the different agencies in terms of coordinating their approach and cooperating. It doesn't always work, but there is a very strong desire to cooperate from the leadership of these organisations. It is truly showing through to all our operatives in terms of trying to coordinate all our activities a whole lot better. Those types of mechanisms are very important.

AS: They are very important, and I think it's very important for the industry to understand how closely you work together. What are some of the things you're working on with the ATO and the Tax Practitioners Board?

GT: In the area of financial advice and superannuation, we work in a sort of triangle. Obviously, there's a lot of work going on at the moment around raising the standards of financial advice. The other area where we work closely is around SMSF audit.

We're responsible for the registration of SMSF auditors and indeed for the removal of auditors from the register. The ATO is obviously the body that receives the audit reports of SMSFs and analyses those – it is the lead regulator in that respect. But there's a close connection between our bodies that has led to a number of people being removed from the SMSF audit register. A couple of hundred were removed for not completing the exam.

We have about 6,500 to 7,000 registered SMSF auditors on the register at the moment, and we continue to get around 10 to 20 applications a month. To be eligible for registration, you need to have at least 300 hours of experience with auditing SMSFs over the last three years, all under the supervision of an approved SMSF auditor.

Some of the problems that we tend to see in the applications are that people don't have that experience. If they have the experience, they might not have their super booked, they might not have been adequately supervised, or their supervisor may not be able to provide an appropriate certification. Quite often when we receive applications which we end up rejecting, it's to do with whether or not people have met that experience requirement.

Quite often people will misconstrue basic accounting services as an audit type service, when there is a significant difference between doing work on the accounts and actually auditing the accounts.

AS: Ian, you do a lot of work directly with ASIC as well, and with the ATO. Where are some of the areas that you cross paths?

Ian Taylor, chairman, Tax Practitioners Board (TPB): The TPB is fairly new on the block, in terms of its interaction with financial advice, financial planners and superannuation. Obviously, many of you here are registered tax agents and some of you are also registered as tax financial advisers. Tax financial advisers only needed to be registered with the TPB since June and July of 2014. Already over 19,000 entities – which include individuals, partnerships and companies – have registered with the TPB.

We worked very closely with ASIC in that process of notification. To get those 19,000 people on board, we used an ASIC data feed, and made it easy for people to register via this notification process. It's not quite as easy now that we're in two additional phases –the transitional mode and the standard registration option. It's not as easy to get the information from ASIC for that.

In terms of the interaction with the ATO, when people become registered with the TPB, we need to let the ATO know.

AS: Your registration process, the transition period, has now finished. How is that going?

IT: Well, in the context of the current discussion, talking about a level playing field, while accountants need to register by 1 July in one way or another, the same is also true of those people who weren't previously registered as tax advisers. Our regime is now creating that level playing field, and those people now need to be registered to provide that tax advice. From 1 January this year, you cannot provide that tax advice unless you're registered with the board.

Overall, TPB has close to 77,000 registered practitioners. They're made up of the three categories: tax agents, BAS agents and tax financial advisers. The bulk of those people do the right thing; unfortunately, there's a small number who don't. Every year, TPB receives around 1,600 complaints from clients of tax agents and BAS agents. At the moment, we don't yet have many complaints in relation to tax financial advice. We suspect that if people have a complaint about a tax financial advice service, they still probably go through their normal channels.

TPB has been fairly active in wiping out the very small percentage of people who don't do the right thing. That also applies to those who provide a service without being licensed. TPB has the ability to terminate those who are registered if they are doing the wrong thing and we've done that on a number of occasions. On Tuesday, we had a person who was a registered tax agent, and had a company structure, a trust structure and his own position, yet they hadn't lodged any tax returns or BAS statements since 2002. That's a pretty simple case – they're out of the system.

Going back to those who practice without being registered – and this may be relevant to those accountants post July and what ASIC might do – TPB has been very successful in taking these people to Federal Court.

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