In a submission on Treasury Laws Amendment (Miscellaneous and Technical Amendments) Regulations 2020, The Tax Institute said the proposed reporting change will place significant compliance burden on SMSFs and their accountants in ensuring that the accounts are prepared in time.
The draft regulations propose inserting a new regulation 8.02AA into the Superannuation Industry (Supervision) Regulations 1994 to require accounts and statements for SMSFs to be prepared, in accordance with section 35B of the Superannuation Industry (Supervision) Act 1993 (SIS Act), at least 45 days before the annual return is required to be lodged, as previously reported.
The submission noted that most SMSFs are required to lodge their annual return by 15 May, so this would require SMSFs to have their accounts prepared by the end of March each year.
“Some funds have an earlier lodgement date (i.e. 31 October), which would require the preparation of the accounts by mid-September. This is unrealistic,” the submission explained.
“Further, many of the managed funds do not publish their tax reports until late September or October, so it would not be possible for a fund that is due 31 October to prepare correct accounts by mid-September.”
The submission also pointed out that accountants spread their workload across the year, which is partly why taxpayers use a tax agent.
“Around 99 per cent of SMSFs use a tax agent to lodge their annual return, and tax agents cannot afford to lose 45 days out of their schedule to prepare SMSF accounts earlier in order to meet the proposed requirement,” it said.
“The proposed amendment will achieve nothing beyond forcing the preparation of SMSF accounts into a tighter time frame which will place additional pressure on accountants and those assisting SMSFs in the preparation of their accounts.”
The 45-day rule, it said, would also substantially increase the ATO’s administration as many trustees will be subject to these substantial penalties and would then seek remission.
“This amendment will likely result in the ATO allocating resources to large numbers of trustees who would be expected to object and dispute these penalties,” it said.
“Moreover, this type of penalty does not align with the late lodgement penalties applying to other notices and forms under tax legislation.”
The proposed amendment, it argued, fails to target the integrity of the system or improve the revenue collection from SMSFs.
“It also fails to provide any benefit to the ATO other than monetary, and there is no trade-off for SMSFs. This measure imposes another compliance burden on SMSF trustees without offering any tangible benefit,” it stated.
It also noted that there is no explanation in the draft regulations of what the definition of “prepared” means.
“Presumably, this takes its ordinary meaning and refers to a completed set of accounts. Demonstrating that the 45-day rule is met also raises interesting evidentiary issues,” it said.
“More record keeping and increased compliance burden to evidence that the accounts were prepared by the required date will be something else the auditor needs to check.”