The ASIC game-changer for SMSF auditors

The next few months starts a transformation for more than 12,000 SMSF auditors, with ASIC registration to open to become an Approved SMSF Auditor.  This registration is mandatory for all SMSF auditors to continue to conduct self managed super fund audits post 1 July 2013.

With about 50% of the SMSF auditors currently auditing 10 SMSFs or less each year, the months ahead will provide some current auditors with “food for thought” about whether they should continue to operate within the sector.  It is anticipated that a significant proportion of the existing auditors will no longer be a part of the industry from 1 July 2013.

The concerns around low-level auditors having the sufficient skills and competency to conduct an appropriate SMSF audit has been discussed and debated for some time… however, the acid-test moving forward begins from 31 January 2013, when registrations commence for the new approved auditor regime.

For those individuals auditing less than 20 funds, this will require the completion of an exam, which will pit their knowledge and judgement against key areas of undertaking an SMSF.  For those auditing 20 funds or more, a streamlined pathway is provided for registration, recognising that a minimum level of competency has been reached to conduct an SMSF audit.  Many in the industry will argue that this level is probably too low…

Regulation of SMSF auditors will see ASIC and the ATO play a dual role in managing SMSF approved auditor sector.  The ATO will continue to “police” regulation of the sector, with ASIC to maintain and enforce:

  • the independence principles of APES 110: Code of Ethics for Professional Accountants;
  • the applicable auditing and assurance standards; and
  • competency standards

ASIC has recently launched an SMSF auditors page, which provides further valuable information for fund auditors and trustees who may wish to search the register for approved SMSF auditors from 31 January 2013.

Cost no barrier for SMSF auditors, but competency could be?

The announcement of the  replacement of the accountant’s exemption has grabbed much of this week’s headlines, but for SMSF approved auditors,  the release of the ASIC registration requirements provided some much-needed guidance around minimum levels of competency and the costs of registration.  For those auditing more than 20 funds, there was a reprieve from having to sit an exam, with this minimum number seen as the base competency level required continue to operate in sector.  This direct pathway into the ASIC framework for some must come as a huge relief!!  However, for those auditing less than 20 funds, the exam creates an interesting challenge for those who have previously ‘dabbled’ in the sector.

As you can see from the table below, published in the latest ATO SMSF Statistical Summary (2009-10), more than 50% of current approved auditors are going to need to sit a competency exam to continue to work as an approved auditor from 1 July 2013.

The issue here won’t be cost, with a $100 registration fee and a $50 ongoing fee when submitting their annual statement.  For those that have to sit the exam, a further $100 fee will apply.  Less than the cost of one audit (for most)!!  The challenge will be whether many practitioners currently auditing SMSFs have the necessary skills around audit and SIS compliance to continue to operate in the new regulatory environment.  Recent ATO research into SMSF auditors conducted by Colmar Brunton Social Research, showed a very high likelihood of the more than 11,000 auditors would move into the ASIC regime.

With registrations to start from 31 January 2013, many existing auditors (and aspiring approved auditors) need to think about getting themselves ready for the new framework from 1 July 2013.  For those becoming serious about forging a career in the SMSF sector, the exam may just be the start moving into a specialist SMSF role.

What are your thoughts on the auditor requirements? Should everybody have been required to sit an exam?  Is 20 funds too low? I’d love to hear your thoughts!!

Full details of the Minister’s announcement can be read here.

Has the fight for the SMSF key adviser seat has just begun?

The announcement by Government on the weekend of the proposed replacement of the accountant’s exemption with a conditional licensing framework has been claimed as an overwhelming victory for the accounting profession who argue their member’s stronger professional standing with providing strategic advice to SMSFs.  It may not necessarily be a viewed shared by many within the financial planning industry, but every argument has two sides… the tax agent requirements extended for financial planners certainly didn’t sit well with many in the accounting profession.  Ultimately though, the government objective of providing greater access to affordable advice can hopefully be achieved through these reforms.

The announced reforms will allow accountants the choice to either:

  • apply for a new limited Australian Financial Services License (subject to holding a public practice certificate and meeting certain training requirements); or
  • become an authorised representative under an existing AFSL holder
The extension to SMSF advice will see accountants be able to provide advice not only in respect to the fund establishment, but will allow for advice on:
  • contributions
  • pensions; and
  • switching of super between funds
Further extensions with the conditional licensing framework around class of product advice have also been provided to allow for advice on superannuation products, securities, general and life insurance, simple Managed Investment Schemes, and bank deposit products.
How will win the battle of SMSF advice?

With the growing trend of ‘coach-seeker’ SMSF trustees, this revised licensing framework provides an exciting opportunity for those wanting to focus on strategic advice to SMSF trustees.  This non-product advice area was something the accounting bodies (and SPAA) were lobbying for.  For many practitioners, these reforms can allow them to focus on reshaping their business model to diversify revenue towards advice and progressively move away from compliance-based businesses.

The move into a licensing regime may have its challenges for accountants, but certainly shouldn’t be a barrier-to-entry to move formally into the SMSF strategic advice space.  The ‘grey’ area in which many accountants operated around contributions and pensions in my view will see many look to grow this area, with ‘scaled advice’ as a potential benefactor, where the trustee/member will look for piece-by-piece advice through the SMSF life-cycle.

With the financial planning professions appetite for SMSF advice also growing, it presents an interesting time for the industry.  Many planners now bypass the accounting relationship with the administration and compliance function outsourced to specialist service providers or even setting up internal admin teams.  Who has the relationship moving forward becomes paramount as to who gets to provide the non-product advice to the client.

The diagram below shows the segments of the industry and where focus will be for both the accountant and financial adviser after the introduction of these reforms from 1 July 2013.

It is expected that 10,000 accountants will move into the ASIC licensing framework to continue to provide advice in the area of SMSFs.  Moving these accountant’s into the consumer protection framework for SMSFs with licensing not only creates a level playing field with financial planners, but I expect it to redefine the quality of advice and lift standards across the sector.

It’s times like these you need to ask yourself – are you ready for the future of the SMSF industry?

POLL: Tell us about your thoughts on licensing as an accountant; what will you do?


Budget delivers a fix for now but problems for the future

A band-aid approach to superannuation is hurting retirement savings strategies and confidence in the sector.

It was a budget that certainly delivered on news that the Government was tightening its belt to deliver a budget surplus for 2012-13 and superannuation was certainly not immune from this pain.  Unfortunately though, as a result of the announced changes in tonight’s budget, we are likely to see confidence in the superannuation sector erode as the Government takes a narrow view to retirement savings policy for the sake of short-term popularity to endeavour to re-build public credibility of the Labor Party.

The measures about the additional contributions tax for individuals earning more than $300,000 made public a week ago started the bandwagon of criticism about a Government again using superannuation as a political football to kick a few financial goals.  Unfortunately, the news delivered within the budget extended beyond this measure, sending a clear message about discouraging Australians to save for retirement.

So, here’s delivering the news:

30% contributions tax rate for individuals with income of more than $300,000

From 1 July 2012, individuals with income greater than $300,000 have a 30% tax rate apply on concessional contributions, rather than the 15% flat tax rate currently available.

The definition of “income” will be quite broad providing a greater catchment area of individuals subject to the higher contributions tax rate.  This will include taxable income, concessional superannuation contributions (e.g. superannuation guarantee contributions and salary sacrificed contributions), adjusted fringe benefits, total net investment loss, target foreign income and tax-free government pensions and benefits, less child support.

There was some concern that an effective tax rate of 108% could apply where an individual breached the concessional and non-concessional contribution cap (calculated as 30% contributions tax + 31.5% ECT concessional contributions + 46.5% ECT non-concessional contributions).  However, the Government has announced that the 30% tax rate will not apply to contributions that exceed the concessional cap.  This effectively means that the highest marginal tax rate (46.5%) will still apply to excessive contributions.

It is unclear how the ATO will collect this additional contributions tax and what additional reporting will be required by super funds, in particular with tax-free benefit payments.  If the super surcharge system was anything to go by, this could amount to another administrative disaster.  Measures could apply to allow the ATO to collect this additional tax under the compulsory release authority that applies for non-concessional contributions.

Join us for a webinar about the impact of the Federal Budget and what it means for SMSFs

Deferral on proposed extension of concessional contribution cap for over 50’s to 1 July 2014

With the transitional period for concessional contributions for those over 50 finishing at 30 June 2012, the Government back in May 2010 announced as part of their ‘fairer super’ package an extension of the concessional contribution cap where an individual’s super balance was less than $500,000.  A deferral of the start date to 1 July 2014, is effectively an acknowledgement by Government that this policy decision is administratively difficult and that currently inadequate systems and reporting exists to appropriately manage the extension to the cap.

As a result of this deferral, all taxpayers, regardless of age, will be subject to a concessional contributions cap of $25,000 for the 2012-13 and 2013-14 income years (remembering that the Government in the Mid Year Economic & Fiscal Outlook; MYEFO) announced a freezing of indexation in 2013-14).  When these measures are finally expected to commence in 2014-15, indexation of the concessional cap should occur to $30,000, meaning eligible individuals will be able to make concessional contributions up to $55,000 where 50 years of age an over.

Accordingly to Minister Shorten, deferring the start date to 1 July 2014 will allow implementation to occur in conjunction with changes to super fund reporting and systems that will be occurring under the SuperStream reforms.  With the ATO developing an online reporting facility to manage member super balance, this deferral will allow for sufficient time to provide access to for member to comprehensive account balance information.

This changes are going to have a significant impact on individuals salary sacrificing into superannuation, in particular those with transition to retirement strategies.

SMSF Auditor Registration

The SMSF Approved Auditor role has been subject to significant reform as a result of recommendations from the Cooper Review to address issues of competency in the sector.  Final details of the auditor registration along with the replacement rule for the accountant’s exemption are long overdue and have become a key source of frustration for the accounting industry.

The Government announced that it will provide $10.7m over 4 years to ASIC to develop and maintain an on-line registration system for auditors of self managed superannuation funds (SMSFs).  As part of the registration process, ASIC will develop a competency exam for SMSF auditors. ASIC will also be responsible for the de-registration of non-compliant auditors.  It is unclear whether the competency exam will apply to all approved auditors, or only to those who don’t meet minimum criteria such as number of funds audited each year?

Auditors may begin to register with ASIC from 31 January 2013.

In addition, a further $10.6m over 5 years (including $1.5m in capital funding in 2011-12) will be provided to the Tax Office to police registered auditors, check their compliance with competency standards set by ASIC and refer auditors to ASIC for enforcement action. The cost of this measure will be offset by increases in the SMSF levy and fees charged by ASIC for sitting the competency exam.

Still no word from Minister Shorten on the accountant’s exemption replacement.  

We do need to overlay these budget announcements with some of the More Super measures to increase SGC from 9% to 12%, introducing a $500 credit for low-income workers and abolishing the age limit for SGC payments, which were applauded by the industry.  However, many people looking to self-fund their retirement have been dealt a blow, and will challenge advisers as to the worth of individual’s building superannuation savings at the risk of the Government moving the goal posts again and again in the future.

Join us for a webinar about the impact of the Federal Budget and what it means for SMSFs

Stronger Super: The impact for SMSFs – webinar now uploaded

I have now uploaded the webinar recording of this afternoon’s special session on the impact of the Stronger Super reforms.

These reforms announced by the government last week were in response to the Cooper Review (Super System Review) recommendations submitted to government on 30 June 2010.

Click here to watch this webinar, or alternatively download from the Box on the right hand side of the page.

Wishing you a Merry Christmas and a Happy New Year.  I look forward to sharing more with you in 2011.

(C) The SMSF Academy 2012
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