Raising the member limit for SMSFs from four to six will reduce costs and ease the compliance burden for the ATO and for taxpayers, an independent statutory agency has said.
In its submission to the Senate Standing Committee on Economics regarding the committee’s inquiry on the Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020, the Inspector-General of Taxation and Taxation Ombudsman (IGTO) said the move to six member SMSFs would lead to a welcome reduction in the total number of SMSFs.
According to the IGTO, raising the member limit would minimise compliance costs for taxpayers who would no longer need to establish multiple funds in order to accommodate larger families.
Further it pointed out the resulting reduction in the number of SMSFs would also help ease the heavy administrative burden currently placed on the ATO.
“The IGTO notes that the Bill will allow an increase in the maximum allowable membership of SMSFs and considers that this will improve tax simplification and reduce costs for the ATO and taxpayers alike,” it said.
In addition, the agency highlighted the likelihood of a reduction in revenue for the ATO as a result of allowing up to six members in an SMSF, and offered to help assess the potential impact of this reduction on the regulatory body.
“The new law is likely to see a reduction in the number of SMSFs within the tax system which will correspondingly reduce the total revenue received by the ATO from the supervisory levy,” it predicted.
“The Committee may be assisted in assessing the financial and regulatory impacts of the proposed law change, by making enquiries with the ATO regarding any forecast reduction in the number of SMSFs as a result of the law change; the corresponding reduction in the total revenue raised from the SMSF supervisory levy; and the sufficiency of that revenue to enable the ATO to continue educating and regulating the SMSF sector.”
Citing research undertaken by the agency into SMSF-related complaints, it also said the 200 complaints received by the IGTO since it began its study in May 2015 had not included any complaints regarding the limited number of members allowed for SMSFs.
The agency found the common issues raised in the complaints received related to administrative delays associated with the establishment and registration of funds, as well as ATO audit processes and decisions, and incorrect or incomplete advice from the ATO.
In a separate submission to the Senate Standing Committee on Economics, CPA Australia said the move to six member funds was unnecessary and would heighten certain SMSF structural issues, while the Association of Financial Advisers and the SMSF Association downplayed potential problems, noting in their submissions such issues were not solely linked to having a maximum number of six members in a retirement savings structure.