The last time I looked, the sole purpose test dictates an SMSF needs to be maintained for the sole purpose of providing retirement benefits for its members or their dependants if the member passes away before retirement.
At no stage have I ever read SMSFs exist to be a political football for our elected officials in Canberra. But if you’d been following the most recent developments in the sector, you’d be forgiven if you thought the latter was true.
Take the 2018 federal budget proposal to allow SMSFs with a good compliance and annual return lodgement history the ability to switch from an annual independent audit cycle to a three-year audit cycle as an example.
Just about everyone involved in the sector admits they didn’t see this one coming, which I think is a good enough reason to question the motivational factors behind it.
Okay, the government has said it is a measure aimed at cutting red tape and the costs associated with running an SMSF, however, has it actually prosecuted a reasonable argument for the change on either score or could it? The evidence to date would have to suggest not as the justification for the move has pretty much been deathly silence from the nation’s capital.
On the first point, labelling the SMSF audit as red tape is dangerous in itself. The auditing function plays a very important part in making sure trustees are doing the right thing in the midst of some very complicated rules dictating how one is to run their own super fund. Denigrating this function as being just red tape is already sending the wrong message.
On the second point, how did the government figure out the move would save SMSF trustees money? Most experts will agree audit costs are decreasing all the time, facilitated by the adoption of every improving technology. Further, common thinking suggests a three-year cycle will actually end up costing more money due to the potential complexity with record-keeping and the like associated with the extended time frame.
I know any accountant would agree if you left even the simplest account reconciliation untouched for three years, it would be infinitely more difficult than if it had been done on a year-to-year basis.
The other major budget announcement relating to SMSFs was the move to increase the maximum number of members from four to six. Now to be fair, this has been an issue that has been bubbling away for years and discussed from time to time. But the sudden decision to allow it has also raised some industry eyebrows.
Speculation has been rife as to why these measures were recently announced. Some auditors in smaller practices regard the new audit cycle as a move designed to increase the dominance of the large accounting firms.
Others have speculated whether the increase in the minimum number of members in an SMSF is a measure designed to thwart Labor’s move to disallow franking credit refunds to certain self-managed funds as it will ensure SMSFs have an accumulation account attracting tax liability, and as such an avenue to make use of all available imputation credits.
Overall, the sentiment is that perhaps the government has whacked SMSFs in the past, can see Labor will whack SMSFs more, and was looking to throw some good news items the sector’s way.
I severely hope this is not the case because if so it will mean any changes to the sector will potentially be poorly researched in the name of political gain and expediency.
The SMSF sector remains the largest in the superannuation industry in terms of assets held, dictating its integrity must be absolutely paramount. It cannot be compromised just because some members of parliament want to win favour with voters without thinking through the implications of the proposed measures.
It is time to stop using SMSFs as a political football and for politicians to introduce sensible measures truly aimed at making the sector run more smoothly and efficiently, not only for trustees but also everyone else servicing the space.
