In my last editorial I wrote about the relief the SMSF sector could enjoy for at least one budget cycle by being left alone due to the coronavirus. It was again to highlight the fact legislative risk is the biggest hurdle SMSF trustees face.
But I spoke too soon didn’t I, because almost before I had even completed the last keystroke on that opinion piece, Canberra came up with another hare-brained proposal for the sector, which in all honesty has the potential to provide more administrative pain for SMSFs without very much foreseeable gain.
The culprit this time is Treasury as it slipped in Item 67 in the “Miscellaneous amendments to Treasury portfolio laws 2020” proposing that the financial statements of an SMSF will have to be prepared 45 days prior to when the fund has to lodge its annual return.
And I can tell you this move has got practitioners very hot under the collar for several reasons – and one of them is not because it places them under more time pressure. They’re basically angry at the lack of consultation Treasury has afforded them before including the item in the amendment, as well as the practical implications for individual funds.
To their first point, there is a consultation process happening at the time of writing, but it is clear no one from the sector had any input in drafting Item 67. Even the SMSF Association, the industry peak body, says it knew nothing about the move until it saw the offending exposure draft. Had some SMSF stakeholders been able to have their say, there is a good chance no discussion on this subject would currently be taking place.
And this leads to the practitioners’ second point of contention. Had key stakeholders been asked their opinion of the initiative, the impractical nature of the move would have been discovered straight away and, with any luck, knocked on its head immediately.
So what are the practical implications? It basically means the preparation of SMSF financial statements will have to occur separately to the preparation and lodgement of the annual return. For most funds this will mean having the financial statements done and dusted by 31 March before the 15 May annual return lodgement deadline.
As we know, the world is not a perfect place and bringing forward reporting deadlines usually comes with issues, such as not being able to receive the necessary information in time, which alone can lead to flow-on compliance issues, such as the backdating of records.
However, the amendment takes on more significance for newly established SMSF or those funds that are late in lodging the annual return. It is a requirement for trustees of these funds to have the annual return lodged by 31 October, meaning they would have to have the financial statements completed by 16 September.
According to one specialist auditor, to think the SMSF’s financial statements could be finalised less than three months after the end of the financial year is implausible, seeing most tax statements for managed funds would not have even been completed yet.
There has been some speculation the amendment has been proposed to allow auditors some time to familiarise themselves with the SMSF accounts before the lodgement of the annual return rather than just rolling it all into one process. But it seems clear the practical implications suggest this outcome would not be achieved.
So the question that needs asking is who Treasury is listening to about these matters. Whoever it is, it’s safe to say they are not the right people.
I know I sound like a broken record, but it really is time government officials in the nation’s capital started to create a real affinity with the sector to prevent changes causing adverse outcomes from happening and in turn mitigating the ridiculous level of legislative risk facing SMSFs.