ATO, Documentation

TBAR should include safe harbour provisions

TBAR safe harbour

The transfer balance account reporting system should contain a safe harbour for trustees forced to provide information based on incomplete data.

Any changes to the transfer balance account report (TBAR) for SMSFs should include a safe harbour for best estimate reports based on incomplete data, The Tax Institute has recommended to the ATO.

In a submission in response to the regulator’s consultation paper on streamlining transfer balance account event-based reporting arrangements for SMSFs, the institute stated SMSF trustees should be provided with a safe harbour on the amounts reported provided they are based on best estimates.

“We note that SMSF trustees are frequently required to estimate the value of income streams and assets based on the information available to them at a given time,” it said.

“This information can often be incomplete and trustees are required to make reasonable assumptions that, with the benefit of hindsight, may appear inaccurate.”

The submission noted the ATO’s consultation paper references the use of reasonable estimates in regards to asset valuation guidelines for SMSFs and the same could be applied to a TBAR safe harbour where trustees use a reasonable methodology for the evidence they should reasonably be expected to have when making the estimate.

“Providing a safe harbour would ensure that SMSF trustees have greater confidence in their reporting and also encourage reporting at an earlier stage,” it said.

“Further, if the safe harbour is supported with a sound mechanism that allows for correction, SMSF trustees may be encouraged to review and report any transfer balance account information on a more regular basis.

“SMSFs would also feel confident to report any adjustments if they subsequently detect an under-reporting when subsequent financial statements bring any under-reporting to light.”

In regards to reporting, it suggested it should take place each quarter in most cases, but may be extended to annually where funds had balances below $500,000.

“We consider that quarterly reporting strikes a reasonable balance between ensuring individuals have the relevant information without placing most SMSF trustees under excessive compliance burdens,” it said.

“We also consider that SMSFs should be supported and encouraged to report earlier and more frequently rather than being required to do so,” it added, pointing to the safe harbour message as a way to encourage reporting.

The institute also recommended any changes to the TBAR system should begin from 1 July 2023 to provide sufficient time for SMSF trustees and tax professionals to adapt to the changes.

The reasoning for this was that tax professionals have spent the past two years dealing with economic stimulus measures and business survival due to COVID-19, and during 2022 will also be dealing with changes to the single touch payroll system and the ongoing impact of the virus on employees and clients.

“We consider that adopting the new TBAR system for SMSFs from 1 July 2023 will allow tax professionals to ensure they are ready to adopt this increased reporting criteria,” it noted.

“It will also allow SMSF trustees sufficient time to better understand their reporting obligations and enable them to more readily meet the new reporting requirements.”

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