The federal government has given the Australian Securities and Investments Commission (ASIC) the green light to move to a cost recovery model for regulatory activities. Treasury has released a consultation paper canvassing the model that specific regulatory activities requested by an entity should be fully recovered from that entity. The existing model of fees charged by ASIC is not based on any form of cost recovery and the consultation paper makes it clear that, in a number of cases, the proposed fees will result in a significant increase from their current level.
Some of the fee rises relate to SMSF auditors. The one-off cost of registering as an SMSF auditor under this fee-for-service model will rise from $107 to $3429. Other fee increases are also proposed, including applications to cancel SMSF registration (from $0 to $899) and applications to vary conditions on auditor registration (from $0 to $1028). These fee rises are to apply from 1 July.
These proposed increases in registration fees for SMSF auditors under the fee-for-service funding model appear excessive given the amount of money the SMSF sector pays the ATO via its supervisory levy.
Each year, the ATO collects $259 from each SMSF to finance the monitoring role the tax office performs for the sector on behalf of ASIC. Based on roughly 550,000 SMSFs, that amounts to $142.5 million each year being collected from SMSF trustees to monitor SMSFs.
Over a period of eight years to 2013/14, the SMSF ATO supervisory levy has increased from $45 to $259, a 575 per cent rise in the annual cost of funding the compliance role of the ATO. For 2006/07, the annual ATO SMSF levy was $45, but trebled to $150 from 2007/08 to finance improvements in SMSF regulation.
In the 2011 federal budget, the ALP government announced the ATO SMSF levy was increasing from $150 to $180, effective from the 2010/11 SMSF tax return, to help cover the costs of new measures. At the time, then-assistant treasurer and superannuation minister Bill Shorten said these measures included: “The introduction of a new administrative penalty framework, registration of fund auditors subject to competency and independence standards, improved data collection and improvements to the self-managed superannuation fund registration process.”
For 2011/12, the ATO supervisory levy for SMSFs was then increased from $180 to $200.
So the earlier increase in the ATO levy (from $150 to $180) was to help fund the SMSF auditor registration process, and now the 2011/12 rise (from $180 to $200) was also supposed to fund the registration process. Later increases have now taken the ATO levy to $259 a year.
The ATO levy increase imposed during 2011/12 (an extra $20), was going to be divvied up between ASIC and the tax office. The government provided ASIC with $10.7 million, over five years, to develop and maintain an online registration system for auditors of SMSFs. ASIC also developed a competency exam for SMSF auditors, and is able to deregister non-compliant auditors. The government gave the ATO $10.6 million, over five years, to police registered auditors, check their compliance with competency standards set by ASIC and, if necessary, refer non-compliant auditors to ASIC for punishment.
Some of the funding for the SMSF auditor registration process was also sourced by ASIC charging auditors to sit the SMSF auditor competency exam.
Given the history outlined above around the ATO supervision levy, it appears the SMSF sector already contributes significantly to fund monitoring of SMSFs.
The fee increase under the proposed fee-for-service funding model must take into account the money that has already been collected via the ATO supervisory fee.
The proposed fee increase from $107 to $3429 will have a detrimental impact on the number of new SMSF auditors providing this specialised service to the sector. The proposed increase will place even more pressure on SMSF auditors, whose numbers have decreased to 6341, after 487 were deregistered (including 287 who failed to lodge annual statements).
For those who are specialised or highly specialised, including sole practitioners or small firms, it will mean absorbing the cost increase as some feel the cost cannot be passed on, while others expect to pass on the cost to clients. It remains to be seen if the additional cost can be passed on in an environment where many clients are seeking discounted prices and especially given the mounting costs on trustees. There are a lot of experienced accountants who provide these services on a part-time basis who will rethink providing such services if the proposed fee increases proceed.
ATO statistics indicate the SMSF auditor sector is becoming more concentrated over time and higher registration fees coupled with other professional costs will only serve to increase the concentration.