Emma Rosenzweig Deputy Commissioner, Superannuation and Employer Obligations
Speech delivered to the SMSFA National Conference on 23 February 2023
Thank you Peter, for inviting me to come and talk today.
It’s a pleasure to BEE here, and great to be co-presenting with Leah from ASIC this year, given our joint regulatory role in the SMSF sector.
Before we get to our Q&A session, I’m going to provide you with a very brief overview of topical issues and trends we’re seeing in the sector, and some of the outcomes from our compliance activities over the last 12 months.
Key SMSF numbers
So in keeping with this year’s bee theme, let’s start by looking at who’s in the SMSF hive.
Our statistics and research shows the sector continues to grow and remain strong, and is made up of a diverse array of participants.
Our recently released 2021 annual statistics show there are:
- over 603,000 funds
- more than 1.1 million members
- $868 billion in retirement savings.
This means by asset value, SMSFs are the second largest fund type behind Industry funds which hold just over $1 trillion. I think this really highlights how important our sector is to the overall health of the Australian superannuation system. There’s still a big BUZZ around SMSFs.
The ATO’s role as the regulator of SMSFs is not a prudential one as trustees are ultimately responsible for protecting their own interests – its why the word ‘self’ is such an important part of the SMSF equation. Our role is focussed on ensuring funds pay the correct amount of tax and operate for the sole purpose of providing retirement benefits to their members.
As the regulator we see significant variances in the knowledge and capability of new and existing trustees in running their SMSF, and we know this has a direct correlation to their ability to meet their obligations. It is a common theme coming from trustees who run into issues to tell us they didn’t understand the rules or the work it would take to run their fund.
This clearly has flow-on impacts for you as they often mistakenly forget about the ‘S’ in SMSF and believe professionals are responsible for the performance and operation of their fund. You have a critical role in helping us maintain the health of the sector by only encouraging individuals to enter and stay in the system if they are fully committed to meeting their obligations and running their own fund.
To better tailor the support we provide, we have commenced demographic analysis of the sub segments of the SMSF population. You might be interested to know our preliminary analysis indicates:
- 45% of funds are linked to small businesses
- 25% are linked to private wealth groups
- remaining 30% are connected to individuals not in business.
Further analysis is underway but we are already seeing differences in the compliance behaviours for these sub segments. For instance, we have found higher rates of non-lodgment and loans to related parties for those funds with members operating a small business. There also appears to be a higher proportion of individuals entering the system for the purpose of illegally accessing their super as this group tend to be targeted by promoters. Finally, inappropriate tax planning arrangements involving SMSFs are more common where fund members are part of a private wealth groups.
Key focus areas
So as the keeper of the hive we have a few key areas of focus, and these are not new.
Identity fraud and investment scams
In the SMSF sector, identity fraud and investment scams are a top priority for us because even though instances are still rare, the impact can be devastating. You could say that it can lead to a real STING.
As everyone here would be aware, there has been a significant increase in identity crime in the community which increases the risk of SMSFs potentially being used for fraud. To combat this, we work with other regulators, such as ASIC and APRA, to ensure there are a range of safeguards in place.
For instance, APRA has encouraged the funds it regulates to undertake additional proof of identity checks prior to rolling money over into an SMSF. This may delay the processing of these requests but is an important control.
We also recently removed the ability for SMSF trustees to provide bank account details during the registration process. This change means that trustees now need to authenticate their identity with us before they can register a bank account for the fund.
Illegal early release
The most common compliance issue we see relates to individuals taking advantage of their direct access to their SMSF bank account and accessing their retirement savings before they should. This behaviour appears to be on the rise and is a key area of concern for us.
To address this, we have increased our messaging on this topic to discourage people from going down this path and to help them understand when they can and can’t access their retirement savings. Superannuation is not a HONEYPOT that can be treated just like another bank account.
For instance, we recently published an illegal early access fact sheet which warns people of the consequences of accessing their super before meeting a condition of release and what to do if contacted by a promoter. If you’d like a copy talk to one our friendly staff in the ATO booth or it can be found on our website.
We have also scaled up our compliance program to deal with individuals who ignore our warnings and promoters of illegal early access schemes. So far this year we have already disqualified 389 trustees, raised additional tax and penalties of over $10 million and are reviewing the activities of a number of suspected promoters.
I’d like to take this opportunity to encourage you to let us know if you come across any promoters of illegal early access schemes. These people often target vulnerable communities and the financial impact on the victims can be substantial so we would appreciate your help with stamping out this behaviour.
SMSF auditor program
Another key area of focus for us relates to our SMSF auditor program given the critical role this group plays in assisting us with maintaining the integrity of the system.
The majority of auditors do the right thing, and we are seeing increased levels of contravention reporting, rectification plans and voluntary disclosures which are all positive traits of a healthy system.
The prime focus for our SMSF program is to preserve the strong relationships we have developed with the professionals in this industry. This is a very important part of what we do as it allows us to stay abreast of core issues impacting the audit process and where appropriate provide support and guidance to assist.
We have also worked closely with ASIC to reshape our compliance program to address risks in a timely and differentiated manner and ensure audits standards are maintained. The revised program is expected to lead to an increasing number of reviews and higher rates of referral to ASIC.
Paul Delahunty from my team is running a SMSF audit workshop later today so please BUZZ along to his session.
Help and support
I would also like to mention a number of key changes relevant to the sector and the guidance we have developed to help you navigate this.
In developing this support, we work closely with professional associations including the SMSFA and I’d like to thank them for their assistance.
In the last few months, we have released information about:
- Changes to the TBAR reporting timeframes
- Characterisation of Death Benefits
- Director ID requirements.
The latest information on these topics can be found on our website.
This brings me to the end of my presentation but before I wind up, if you are to take one thing away today, it is the importance of you helping your clients get the basics right!
In other words, if people are prepared to take on the responsibility of managing their own super it is not unreasonable to expect them to meet basic obligations like lodging forms on time and keeping their contact details up to date. The consequences of not doing so can be significant.
Thank you, and I will now hand back to Peter.
Speech delivered by Deputy Commissioner Emma Rosenzweig to the SMSFA National Conference on 23 February 2023.