The new SuperStream requirements are about to be introduced for all superannuation funds, including SMSFs. David Shirlow and Kelly Cox outline the practical implications of the new regime.
Law supporting the SuperStream reforms is already in place. It can impose requirements on super funds and their employer sponsors to transact electronically. In the next month or so, some SMSF clients and their employers will need to put in place new processes for making and receiving contributions to comply with new standards that will apply from 1 July. This article sets out the background to the SuperStream reforms, key transitional rules and practical consequences of them for affected clients and employers.
Background: improving the back office of superannuation
SuperStream, part of the government’s Stronger Super reforms, is a package of regulatory measures designed to improve the efficiency of the back office of the Australian superannuation system.
Prior to the SuperStream reforms, there was no standard method for transmitting data and payments associated with transactions within the superannuation system. Consequently, the requirements for processing data and payments varied from fund to fund, often resulting in a number of inefficiencies, such as poor data quality, processing delays, and duplicated and lost accounts.
The SuperStream reforms introduce a standard electronic protocol (that is, the Data and Payment Standards 2012, referred to here as the Standard) for exchanging information and payments related to certain superannuation transactions with the aim of improving the way fund-to-fund rollovers are processed and contributions are made.
The Standard specifies the minimum requirements that must be adhered to by superannuation fund trustees and employers when dealing with rollovers and contributions. Broadly, the requirements set out in the Standard include:
the electronic format that super funds and employers are to use for contribution and rollover payments,
the information to accompany rollovers and contributions and the electronic format to be used for that information, and
he validation of information received by the super fund.
The legislative basis for the Standard is primarily the Superannuation Industry (Supervision) (SIS) Act 1993 and it is also supported by requirements imposed under the SIS regulations. The reforms also introduce performance standards for super fund processing of rollovers and contributions that are received in accordance with the Standard.
What is the impact on rollovers involving SMSFs?
While rollovers between Australian Prudential Regulation Authority (APRA) funds are already required to be made electronically and must now generally occur within three business days from the date the fund receives the request and all the member and fund information necessary to complete the rollover, currently there is no requirement applying to rollovers involving SMSFs. A start date for applying the Standard to SMSF rollovers has not been determined yet.
How are employer contributions affected?
Employer obligations – the broad framework
The starting position under the Standard is that employers making contributions on behalf of employees must be able to send the contribution payments and related information to a super fund electronically in accordance with the Standard. This generally applies to contributions made to all super funds:
- from 1 July 2014 for medium to large employers (those with 20 or more employees), and
- from 1 July 2015 for small employers (those with fewer than 20 employees).
However, an employer that is a related party, as defined by SIS, of an SMSF is not required to comply with the Standard in relation to contributions made to the fund. Assuming, as is typically the case, that the employer is not a standard employer-sponsor, under SIS it will only be a related party of the fund if it is one of the fund members or a part 8 associate, as defined in the SIS in-house asset rules, of a member.
So small or related employers need not take action to comply with the Standard for contributions made in the 2014/15 income year.
Further, the Standard contains various other transitional measures and, for large employers, it is worth noting in particular that on 27 March the Australian Taxation Office (ATO) released draft revisions to those measures that provide some short-term alternatives. These are taken into account in the following section.
Unrelated medium to large employer obligations – transitional rules
The following description of the transitional measures assumes the ATO’s draft revisions will be made, but bear in mind they may change as a result of industry consultations.
Information requirements
The information required to be sent from 1 July is the same for all time periods. The employer will need to provide details about the parties involved with the payment and messaging and the type and amount of the contribution. Each relevant employee’s full name, residential address, tax file number and telephone number must be sent on the same day as the contribution and, if the employer has not previously made a contribution to the relevant fund for the employee, the employee’s date of birth and sex. Note, however, that an employer is relieved from providing certain information if it has made reasonable efforts to obtain it and the employee has not provided it. The employer must also assign a unique payment reference number for each contribution or group of contributions made in the one transaction.
Format requirements
While the prescribed contribution information must be sent from the outset, there is scope for variation of the format in which information is sent in the early months. That is, from 1 July to 2 November 2014 inclusive, the electronic format in which the contribution payment and the supporting information is sent merely has to be in a format that the trustee has advised it can accept. (There are certain other transitional concessions relating to processing details that will not be covered here.)
Super fund trustee obligations – transitional rules
For their part, SMSF trustees must also be able to receive contribution payments and related information from employers in accordance with the Standard. Assuming the Standard is amended in line with the draft transitional measures referred to earlier, trustees will be able to agree an electronic format with an employer for the period from 1 July to 2 November 2014 inclusive, but must be able to meet the prescribed format from 3 November 2014. Again, an exception applies for SMSFs that only receive contributions from employers that are related parties of the fund: there is no obligation to receive a contribution from a related employer in accordance with the Standard.
Time limits for allocating contributions
Unlike APRA-regulated fund trustees, who will have a three-business-day limit, SMSF trustees continue to have up to 28 days after the end of the month in which a contribution was made to allocate it to the relevant member. The ATO has expressed its view on the timing of the allocation of concessional contributions for cap purposes in its relatively recent determination ATO TD 2013/22.
How are other contributions affected?
Other contributions, such as those made by a fund member personally or their spouse, are not required to be made in accordance with the Standard.
The practicalities: action items for SMSF trustees, members and employer sponsor
Generally, SMSF trustees receiving contributions from unrelated medium to large employers must ensure they have the ability to receive employer contribution payments and prescribed supporting information:
- from 1 July 2014, electronically, in a format they choose to accept, and
- from 3 November 2014, in the standard electronic format.
To receive contribution information, SMSF trustees will need to have an electronic service address. To obtain an electronic service address, trustees may need to engage a service provider, such as an SMSF administrator or messaging solution provider, to receive electronic contribution messages on the fund’s behalf. The ATO provides a register of SMSF messaging providers on its website.
Macquarie is one of 14 organisations that will provide its SMSF clients with an electronic message service to help them comply with the SuperStream reforms. Macquarie will do so free of charge. SuperStream data will be readily available in printable reports and data downloads through Macquarie’s client and adviser website pages and ESI data feeds.
SMSF trustees/fund members will need to provide their employer with certain information relating to the fund, including the SMSF’s Australian business number, bank account details and electronic service address. The ATO website suggests this should be done by 31 May.
Employers may need to upgrade payroll software packages or engage a service provider, such as a clearing house or payroll bureau, that can meet the Standard on its behalf. The ATO has also set out employer obligations on its website.
ATO approach – how worried should an SMSF trustee be about non-compliance
As a result of recent legislation, Tax & Superannuation Laws Amendment (2014 Measures No 1) Act 2014, the ATO will have a range of enforcement options at its disposal from 1 July. However, at this stage, there seems little point exploring those options as it would seem the regulator will initially adopt an educative approach to its regulation of the Standard and related SIS Regulations.
In this regard, at the time of writing, the following statement appears on the ATO website: “If you are making a genuine attempt to meet your obligations under the standard, or have in place approved alternate arrangements that are permitted until 30 June 2016, you can expect us to work with you to achieve compliance. We recognise that implementing the standard represents a significant change for employers and SMSFs, and we will be flexible when it is appropriate. We also recognise that, from time to time, there may be circumstances where it is not possible for an employer or SMSF to comply with the standard.
“After the first 12 months of implementation, we will gradually increase our focus on compliance with the standard. We may contact you to determine how you are progressing, if you are encountering any difficulties and to remind you of your responsibilities under the standard.”
Conclusion
The SuperStream electronification of employer contributions becomes relevant from 1 July 2014 for SMSFs, with medium to large unrelated employers, and in the coming weeks affected SMSF clients need to be engaging an electronic service provider, communicating the necessary information to their employers and bedding down an appropriate process.
However, some comfort can be taken from the fact the ATO has clearly indicated it will be taking an educative approach to regulating contribution processes for some time to come.
Also, while the draft revisions of the transitional rules are still subject to change, at this late stage it seems more likely any change would be a relaxation of the rules rather than a tightening.