With a growing number of self-managed super funds, it is without question that adequate resources are required to ensure that SMSFs remain as a well-functioning sector.
It is with some concern however, that the cost of regulation may soon become a barrier to entry, in particular where these costs are increasing against a landscape where administration and compliance costs which appear to be one the decline.
The Mid-Year Economic and Fiscal Outlook (MYEFO) announced an increase to the SMSF supervisory levy from 1 July 2013 to better reflect the true cost of regulation of the SMSF sector. Along with this proposed increase is a change in the timing to collect the levy, with it moving from an arrears payment to collecting the levy in the year of operation. Interestingly, this proposed legislative amendment bill has been referred to the Parliamentary Joint Committee (PJC) on Corporations and Financial Services to review.
Industry submissions to this inquiry rightly request details of the cost recovery of the sector by the Regulator, ensuring such a significant levy increase reflects reflect its true cost of operation.
Timing of the supervisory levy
With the Government proposing to move the levy to collect in the year of operation, the timing change will mean a catch-up payment for SMSF trustees. It is proposed to amortise this payment over two years, with the levy to be imposed as follows:
• 2013-14 – $321, with $191 relating to 2013, plus 50% (rounded up) of the 2014 levy being $259
• 2014-15 – $389, with 50% (rounded down) of the 2014 levy being $259 plus $259 for the 2015 levy
The ordinary supervisory levy would apply from 1 July 2015. It should be noted that the proposed legislative amendment will allow changes to the levy up to $300.
Where is the increased levy being applied?
New ATO powers will enable the regulator to provide trustees with directions to rectify contraventions and/or directions to undertake education. At the recent SPAA National conference in Melbourne it was indicated that some 500 SMSF trustees are expected to undertake some form of mandatory education as a result of compliance breaches to their fund. This training will be conducted online and at no cost.
Yes, no cost. I liken somebody running a red light, being pulled over for breaking the law and forcing them to undertake driver training, but add the cost to everybody’s registration fees each year! It is an unfair outcome for the large majority of trustees who do the right thing.
This proposed change to the levy provides an opportunity to think whether a flat fee supervisory levy is the most appropriate way to regulate the sector? With funds coming in all shapes and sizes, is there a better way to cost-recover it regulation? Here are just a couple of thoughts:
• Could the supervisory levy be risk-rated, whereby the supervisory levy is subject to the fund’s previous compliance history? An increased levy for a period of time would effectively put fund trustees onto a probationary arrangement which would incur a higher level for one or more years
• Should the supervisory levy be tiered based on a fund’s value? The regulatory cost for funds with a higher account balance would not have such an imposition as an SMSF with lower balances.
In referring back to the Cooper Review Panel’s vision for SMSFs it was to remain simpler to operate and manage; operating costs continue to decline and that SMSFs are subject to more effective regulation and better governance.
Whilst many won’t object to the need to ensure the SMSF industry remains ‘well-functioning’ it is imperative that such costs reflect the true cost of regulation and don’t become a barrier to entry as individuals take a growing interest in taking control over their retirement savings.
About Aaron Dunn
Aaron Dunn is managing director of The SMSF Academy and author of the popular industry blog ‘The Dunn Thing’.
Aaron is an SMSF specialist adviser, chartered public accountant and is current chair of the Victoria chapter of the SMSF Professionals’ Association of Australia (SPAA).
He has been invited to appear as an expert before the Cooper Review into the superannuation system and ATO SMSF Auditor Working Group for Super Simplification.
He was previously a nationally-ranked high jumper, with a personal best of 2.14m.
