Calendar with a red push pin.

With the three-day turnaround for SuperStream rollovers still proving difficult in many cases, one audit firm has warned there may be a significant number of SMSFs unable to meet the requirements.

Speaking in a recent webinar, Aquila Super lead SMSF audit partner Chris Levy said the three-day time frame required under the latest version of the SuperStream standards could be extremely challenging, particularly where there is little notice that the rollover will be occurring.

“Imagine having a client ring up and say, ‘look, my son wants to roll out, can you have these interim accounts done in three days’ time?’ The vast majority of us have plenty of work on and we’re having to stop everything to do this; it’s getting very difficult,” said Mr Levy.

Three days is an extremely tight time frame for preparing financials and members balances for a fund in order to provide that information to the receiving fund, he said.

“Then separate to that, think about SMSFs that have quite illiquid assets. Imagine a residential property or commercial property and you have a scenario where it’s going to take months to effect this rollover but the payment standards are very clear you’ve got three days,” he explained.

“This is an area that auditors will have to focus on under regulation 6.17 next year, and we’ll have to ask questions around whether the trustees met the three-day turnaround time.”

What accountants have typically been doing for their clients in the majority of cases where the members are also the trustees of the fund, Mr Levy said, is using templates outlining the member’s intention to roll money over.

“The member says, ‘hey trustees, I’m thinking of rolling money over, not at this stage, but can you please get everything set up to do so’. Then there is a second section on that declaration and once the accountant has said ‘yes, look I’ve got everything here’, they say ‘right, here’s my request, as of this day please roll this money across’,” Mr Levy explained.

“So, there’s actual evidence there that will satisfy regulation 6.17. That’s for the easier rollovers, it’s still a bit of paperwork and hassle and red tape, but it’s going to be essential for audits next year.”

Mr Levy warned that there may still be situations where trustees want to undertake a rollover unexpectedly, which is far more difficult.

“We had a situation about two weeks ago where there were two different [couples] who had previously worked in a business together, there was no animosity, but one family wanted to roll their money over to another fund. They sent an email to the trustees and accountants stating that they wanted to buy something. So as soon as they sent the email, the clock started ticking. They had three days to get it all done,” he said.

“Now, fortunately, there were no illiquid assets. The accountant had to stop and get everything done, but it all happened. Had they had not met that three-day turnaround time, however, it would have been a $4,500 fine per trustee. I don’t know how the ATO will enforce it or what their approach will actually be to it, but I would have to think that a huge number of SMSFs won’t be able to meet that requirement.”

Mr Levy said it is very important SMSF professionals and their clients are aware of these deadlines, particularly those who might be considering rollovers.

“One idea that I’ve heard around the industry, but I don’t know that it works legally, is that making addendums or amendments to the actual trust deed rules to basically say that if you want to do a rollover and there [are] illiquid assets, then you have to give one month’s notice,” he said.

“I’m not sure how that works with the SIS Act [however]. I have heard of that happening, though.”

SMSF professionals can also encounter a “chicken and egg situation” with the wind-up of the fund due to the way the systems operate, he said.

“When you use SuperStream, it creates its own journal, but normally you have to finish the accounts in order to get the benefit payment done in the first place, so you end up with a scenario where you prepare the accounts to get the figures, confirm that with the client, and then you have to unlock it and delete that journal and do the SuperStream part and then lock it up again. It’s a crazy system,” he explained.

Aquila Super