What the SMSF audit change will really mean for you

Given that self-managed superannuation funds (SMSFs) enjoy substantial tax concessions, it comes as no surprise that the Australian Taxation Office wants to ensure trustees play by the rules and don't take advantage of the system.

Hence the existence of independent SMSF auditors, whose role is to check compliance and maintain the integrity of the SMSF sector through yearly audits.

From July 1, 2019, this will change for eligible SMSFs as a result of the government's 2018 budget announcement that the compulsory audit cycle for SMSFs will be extended from one to three years. This "reward" will be available only to SMSFs which can demonstrate a clear audit report for three consecutive years and have lodged their annual returns in a timely manner.

The rationale is it will assist trustees by reducing red tape. Reality or wishful thinking?

The cost of annual audits depends on many factors such as the number of members, how active the fund has been in terms of its investments, the complexities of such investments and whether the fund is paying a pension.

The big overhaul in the super system in July last year (when the 2016 Budget reporting and compliance requirements took effect) adds a layer of complication.

The new requirements included the introduction of complex concepts such as the transfer balance cap and total superannuation balance (the latter requiring trustees to ascertain the market value of fund assets as at June 30 each year). Many wonder how dispensing with compulsory annual audits is consistent with the introduction of additional intricate reporting requirements.

The average SMSF audit cost for the 2016 year (the latest figures available) is $694, a decrease from the previous year's $754. For a fund with a minimum balance of $200,000 this represents 0.35 per cent of the fund's assets. This is hardly breaking the bank.

Catch-up costs

Also, as auditors' professional standards remain unchanged, they would presumably still need to play catch up and review the whole of the preceding three-year period to feel comfortable signing off on the audit report. This is likely to result in increased audit costs in the third year, potentially rendering the purported savings almost worthless.

Further, the surge in popularity of novelty (and sometimes unregulated) investments such as cryptocurrencies raises the question of what horrors may await auditors three years down the track. So much can go wrong in three years and the costs of rectifying the breaches will grow exponentially over this period. Catching breaches early is key to an easier (and cheaper) rectification.

Let's not forget the potential for abuse, by trustees but also of trustees.

Saying to drivers that there will be no speed cameras for 100km is likely to result in them speeding for 99km and slowing down in the last one, so what's to stop trustees from temporarily breaching the rules and "fixing" them just before the next audit?

Without regular independent monitoring, won't trustees be tempted to manipulate asset values or not properly record contributions so they are not hindered by the contribution caps and total superannuation balance restrictions? How will that help maintain integrity and confidence in the system?

The reduced oversight may also prompt unscrupulous spruikers to take advantage of unsupervised SMSFs and entice them into unsuitable (or even non-compliant) investments, with potentially disastrous financial consequences for the trustees.

Sadly, unlike members of other types of superannuation funds, SMSF members cannot recover losses arising from fraud or theft and would be left with few (if any) legal avenues.

Unfortunately, while the proposed measure may reduce annual costs, it may be at the expense of the prudential management of SMSFs.

For information about financial advice on self-managed superannuation funds (SMSFs), please visit our Whole Wealth Superannuation Page.

To speak with a qualified financial advisor who specialises in self-managed super funds, please contact us on 07 3535 0694 or info@wholewealth.com.au.

This article was published and provided by The Australian Financial Review.


#superaudits #superannuation #SMSF

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