One on one with…Dana Fleming

Dana Fleming on real-time reporting

ATO SMSF segment assistant commissioner Dana Fleming worked in the wider superannuation industry before her current role. She talks to Darin Tyson-Chan about the seriousness of some common compliance breaches, as well as the unavoidable path to real-time reporting.

How did you come to work for the ATO?

After 12 years as a partner at KPMG, with the last four of them leading their tax practice for asset and wealth management, I thought it was time for a change. I had a look around and chose to apply for a job at the ATO because I felt it was a way I could make a difference to the industry. I’ve worked all of my life in super and it’s an area I wanted to be able to learn more about from the perspective of interacting with the government as opposed to an adviser where you just sit and wait to find out what happened and then deal with it.

Given your background, did you see the SMSF sector as a natural fit?

Absolutely. My whole career has been in super and I really wanted to continue with that. I have a great interest in it, and ensuring and helping people have a dignified retirement is really important to me. So the SMSF sector was a great fit because it is so focused on education and helping people manage their money safely in their retirement.

I think then there is going to be a lot of pressure to keep moving forward with that event-based reporting transitioning to real-time reporting.

Dana Fleming

Did you service SMSF clients at KPMG?

No, not at all, which is probably a good thing because it meant I didn’t have any preconceived ideas about the sector. I worked on APRA (Australian Prudential Regulation Authority)-regulated funds in the main that included large industry funds, large retail funds, as well as some managed funds and boutiques.

What do you see as the main focus of your role?

Unlike APRA, who is regulating trustees managing third-party money, we are regulating individuals who are managing their own money for their retirement and that means we have to have a slightly different focus. We have to maintain a really careful balance between enforcement, taking action where there are risks in the system, and educating trustees and supporting them to do the right thing.

Do the constant changes to the system make your role more difficult?

I’m fairly calm about it. Today the world changes all the time and being a regulator and implementing government changes is just part of the job for me. No doubt there will be more to come and we will manage them in the same way we always have, which is efficiently and carefully.

How do you rate trustee knowledge?

We have been the regulator for 20 years this year and I do honestly believe trustees really want to do the right thing and generally what we see is that they are doing the right thing. In terms of the contraventions reported, it’s only 2 per cent of all SMSFs. But what does concern me are some of the findings from ASIC (Australian Securities and Investments Commission) reports 575 and 576. The sample size was not massive, but was significant statistically and it was found one-third of trustees had underestimated the time, the resources required and the cost of running an SMSF. The report also revealed one-third of trustees didn’t know they needed an investment strategy. That doesn’t mean they didn’t have an investment strategy, they probably did, but they didn’t know they needed one. I found that quite concerning and it really flags to me that we need to do more work raising the awareness of trustees about what the effort is that’s required to run an SMSF and they need to be engaged and commit the time to doing it, and therefore understand if it is the right decision for the individual. Trustees need to know running an SMSF carries with it responsibilities and potential penalties if you get things wrong.

Apart from some aspects of trustee knowledge, is there anything else you feel requires specific action in the SMSF sector?

For me, it’s around raising awareness for the key issues, such as illegal early release of benefits. Helping people understand that dipping into your SMSF even with the intent to pay the money back is not an option. This is one of our key programs of work this year and it is our biggest concern and to address it we need to do more education. The insights from our previous lodgement program are quite helpful in that they showed if individuals struggled to have an SMSF set up properly from the start, then that struggle would continue. The insights also indicated when people hit a regulatory bump, they may not know what to do. So we need to get the message out for trustees to come and talk to us, use our early-engagement voluntary disclosure service that can help them get back on track. Again it all comes back to the beginning to determine if the trustees understood what they were getting themselves into and that running an SMSF is not a set-and-forget exercise.

How effective has the encouragement of trustee proactivity with the ATO been?

We’re really pleased with the level of engagement we’ve had from trustees. We’ve determined 50 per cent of the contraventions reported are self-rectified – that means the auditor has raised it and the trustee has dealt with it. Further, in the 2018 financial year we only had to take what I call proactive enforcement action, where a trustee is made to rectify problems, in less than 500 of the 17,000 contraventions that were reported. That is a really low percentage and therefore means the balance is working with us to fix these things up and that’s the way we would like it to be.

What’s the feedback been like when voluntary engagement has occurred with the ATO?

Only a couple of weeks ago I had an adviser ask if they could write an article about the experience they’d had with us. They had a client who had gone off track and we’d helped them through a simplified wind-up process where we made it easy to get to the desired outcome. I’m looking forward to working with the adviser on this article because it was a really great experience and we really need to get stories like this out. There is still a perception we are going to take a hard line with people and I’m very conscious of the fact that trustees are people who are doing their best to manage their retirement savings in a responsible way.

The onboarding of all the APRA-regulated funds, through initiatives like SuperStream, means anyone associated with one of these funds will already have had a real-time reporting and data experience.

Dana Fleming

What difference has the introduction of the transfer balance account report (TBAR) made to the SMSF sector?

I actually see it as a part of a bigger change in the whole superannuation industry. The APRA-regulated funds are now in a real-time reporting framework with the ATO, or event-based reporting, and TBAR is the first event-based reporting SMSFs have had to do. So that’s a massive shift in the mindset of a population where people have been paper-based reporting annually. I think then there is going to be a lot of pressure to keep moving forward with that event-based reporting transitioning to real-time reporting.

Would you say people are already seeking more up-to-date information?

That’s only natural in the world we live in today, but I think there is a mindset shift we have to encourage as part of the process. They have to know if they want real-time reporting from the ATO, we only have data that we are given. So if people want to be able to go onto myGov and check their total super balance, the information will not be current if they haven’t lodged their return. That has implications for things like new caps being introduced like the $500,000 threshold for catch-up concessional contributions.

How has the TBAR process been carried out so far?

This is still the first year the system has been implemented and we expected this to be a transition year as people familiarised themselves with it. So we were expecting errors, but I think we’ve gotten through the worst of it now. What we have seen of concern though is there has been a high level of re-reporting after we’ve issued an excess transfer balance determination or a commutation request in response to a breach of the transfer balance cap. The concern is we then get re-reporting that removes the excess, sometimes to the dollar. So they might say ‘I started a pension last month for $500,000, but actually I didn’t start that pension at all’. Seeing this is the first year of the system, we’ve been taking a supportive and educative approach so far, but if we continue to see high levels of re-reporting in those kinds of circumstances in the 2020 year, we will be investigating the reasons for that.

If you could change one thing about the SMSF sector, what would it be?

What I’d like to see is a much greater understanding across the whole of the sector of the legal obligations trustees take on. That means any new trustee setting up an SMSF would be well served to undertake a course of education so they absolutely understand not just the basics, that they have to lodge a tax return and get an audit done, but the implications of what happens to them if they don’t. It’s a matter of having the trustees understand what the outcomes are if they commit a significant breach of the rules, such as illegal early release of benefits.

What’s the biggest challenge facing the sector over the coming year?

The biggest challenge is we really are moving into a digital age and that means everyone has an expectation the information they receive electronically, regardless of how they access it, has integrity, is reliable and is up to date. We’ve begun the process in the SMSF sector with TBAR. However, the onboarding of all the APRA-regulated funds, through initiatives like SuperStream, means anyone associated with one of these funds will already have had a real-time reporting and data experience and this will lead to an expectation this sort of information can be applied in the SMSF sector as well. So we will need to be increasingly prepared to deliver this.

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