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The value of regular reporting

Jul 29, 2021, 10:58 AM
By Philip La Greca
Executive Manager, SMSF Technical & Strategic Services

Today’s society has great expectations - everything should be available and up to date when and where required. In the entertainment sphere the popularity of on-demand streaming services is soaring and across financial services credit and bank balance are in real time through the click of a button. This level of accessibility will eventually become the standard across all aspects of our lives including superannuation. 

This is the value of regular reporting.   

Reporting obligations

Current SMSF regulations require annual reports be made to either a regulator or member. We know these as an annual tax and regulatory return or annual member statements. They outline fund balances and entitlements at the end of the financial year.

There are other reporting obligations, however, that tend to be relatively minimal and are driven by specific events. Transfer balance cap reporting, for example, is important when pension members start a pension or take a lump sum benefit from a pension account. These reports are required on an ad hoc basis but are, nevertheless, important and penalties can apply when deadlines are not met. 

Why increase reporting cycles?

Invariably most SMSF members will have started in an APRA regulated fund. These funds work on a far more regular reporting cycle. Specifically, APRA funds report to regulators, both APRA and ATO, every ten working days and detailed statistical information on a quarterly cycle. In most cases APRA funds also provide additional member reporting daily including member balances, transactions and investment values.

Members often move from an APRA fund to an SMSF for greater control and may wish to have access to information at the same frequency they had previously.

Technology and Data Feeds

It is now possible, through the use of sophisticated software and administration services, for SMSFs to have and provide information to their members on the same basis as APRA funds. This requires the electronic transfer of data to be uploaded and verified to ensure both the member records and investment values up to date.

There are three types of data feeds – valuations, documents and transactional information. Each has a specific purpose but together they allow for information to be kept up-to-date and accurate. 

Valuation data is typically the most simple in nature as it relates to the pricing information for assets such as ASX share feeds and managed fund unit pricing. This can provide daily revaluation of assets which allows a member to see the exact account balance. However, this is only accurate when the number of units or shares held is correct and this is where the other two data feeds come into play. 

Transactional data is fairly normal - we see it all the time. The most obvious example is your bank account and most SMSFs, of course, have a bank account for processing transactions. When we look at this data it is important to recognise not just the value of each transaction but the additional information provided. Therefore, it is critical for transactions to have accurate reference information and descriptions so each can be mapped with supporting documentation.

There is a limit to the types of transactions that can be made and each transaction should be able to be matched to supporting documentation whether digital or scanned.

SMSFs allow only four types of deposits -  contribution, roll over, investment income or proceeds from the disposal of an asset. Similarly, debits come in four types – expenses, lump sum benefit payments, pension payments or purchase of investments. Each type of transaction will have specific supporting information.

Of course, to a large extent, this process is not yet fully automated in terms of matching document information to transactions. With the development of artificial intelligence, document scanning and smart reading however we will see increased processing times and accuracy. This will allow for a timelier transaction process providing members with up-to-date information.

Improved compliance outcomes

Pro-action is always more favourable than reaction and timely information allows SMSFs to monitor compliance rather than report. Compliance reporting occurs when the event happened in the past, such is the case with traditional annual in arrears administration services. Transactions are not monitored, and problematic actions are not identified until the end of the financial year. Regular reporting allows for these transaction to be picked up and rectified quickly. 

Strategic planning

Providing members with up to date and accurate information allows for better decision making. Members can avoid tax penalties associated with not satisfying Total Superannuation Balances (TSB), contribution caps, Transfer Balance Caps and pension limits.

There is a multiplicity of contribution rules such as bring forward non concessional, carry forward concessional and recent retiree, all of which depend on a member’s TSB. Tracking both the TSB and contributions simplifies year end contribution planning.

For pension members there are similar considerations, the first of which is ensuring the minimum pension level for the financial year has been met. The consequences of not doing so include tax penalties. Pension members should also be able to identify when they have reached their minimum pension level so that they can consider what extra withdrawals to take and how to treat them. Knowing how much a member has started in a pension is pivotal in determining whether or not they have the capacity to start additional pensions in the future which could come about through the death of another member.

While ultimately the ATO is the repository of all information relating to total super balances, contribution caps and transfer balance accounts it is not always accurate due to the cycle of reporting for SMSFs. It is therefore important to keep all SMSF records are up to date. This allows a member to use a combination of both ATO data and SMSF data when determining their capacity to either make contributions or commence additional pensions.

Of course, this will also enable advisers and accountants to assist their clients in monitoring these key thresholds. The plans that derives from this can ensure that clients maximise their retirement savings and avoid negative outcomes.

Future state

One thing we need to recognise is that the SMSF sector is a key element and a significant player in Australia’s retirement saving system. It represents over a quarter of all superannuation monies yet is the sector that provides information to regulatory and government bodies on the slowest (almost a year after the fact) and least frequent (annual) cycle. It is unlikely that this trend will continue forever as SMSFs continue to play such a large role in the system. It could be expected that more frequent reporting will become necessary and this will require more sophisticated administration systems.

We are already seeing this play out from October 2020 with the movement of rollovers and some release authorities to an all-electronic structure via SuperStream.

Want to learn more about regular reporting?

Get free access to our Future Proofing an SMSF - the Value of Regular Reporting Web Series which ran in July - August 2021.  It's for trustees, accountants and advisers who want a better understanding of how regular reporting can help with SMSF strategies and minimise risk. Practical and case-study based.

Part 1 - Watch here.
Part 2 - watch here.