A paper released by Treasury last week said transitional arrangements may be needed to “assist the SMSF audit industry to adjust to changes to workflow associated with SMSFs transitioning to three-yearly audit cycles.
One of the transitional arrangements suggested in the paper is to split the SMSF sector into thirds, with staged eligibility for audit between 1 July 2019 and 1 July 2021.
Further, it stated that eligibility for a three-yearly audit will be based on self-assessment by SMSF trustees.
The three-year SMSF audit cycle was introduced in this year’s budget, with Minister for Revenue and Financial Services Kelly O’Dwyer saying it will reduce the compliance burden for funds that have a history of good behaviour and have relatively simple affairs.
“The objective is to incentivise good SMSF record-keeping and compliance by alleviating the regulatory burden whilst maintaining optimal system oversight and integrity,” Ms O’Dwyer said.
“We have listened to initial stakeholder feedback on the budget announcement and welcome further feedback to ensure this change is appropriately targeted and implemented.”
Last month, Institute of Public Accountants chief executive Andrew Conway said the proposal “may be very well intended but could well be misdirected”.
“Having one audit every three years that covers the three-year period may seem more efficient but may not translate to cost savings. The question needs to be asked if the potential cost savings, if any, are worth the risk of SMSF trustees becoming non-compliant,” Mr Conway said.
“Does the government want to put at risk the current record of good compliance?”
The consultation paper acknowledged stakeholder concerns about the three-year SMSF audit cycle, such as possible increased non-compliance with tax and regulatory obligations.
Further, it noted that a reduction in audit frequency could alter the workflow of the SMSF audit industry, reducing profitability, and lead to a reduction in the number of businesses specialising in SMSF audits and lower quality audits.
“These concerns will be mitigated by appropriate eligibility criteria and, if necessary, transitional arrangements,” the paper said.
“The ATO will continue managing the risk of tax and regulatory breaches by monitoring SARs, thus maintaining appropriate oversight of SMSFs on a three-yearly audit cycle. The ATO will continue to have the ability to audit particular SMSFs in response to identified concerns.”
Submissions for feedback on the consultation paper are due by 31 August 2018.
