The ATO should provide SMSF trustees with a safe harbour for estimates used when reporting the value of income streams, says the Tax Institute.
In a submission to the ATO’s consultation on streamlining transfer balance account reporting, the Tax Institute said SMSF trustees should be provided with a safe harbour on the amounts they report, provided they are based on best estimates.
“We note that SMSF trustees are frequently required to estimate the value of income streams and assets based on the information available to them at a given time. This information can often be incomplete and trustees are required to make reasonable assumptions that, with the benefit of hindsight, may appear inaccurate,” the submission stated.
“As a result, the values reported may change over time due to factors beyond the control of SMSFs trustees.”
The submission explained that the safe harbour could provide SMSF trustees with protection, provided they use a reasonable methodology for the evidence that they should reasonably be expected to have when making the estimate.
“The current position is not clear and additional unnecessary costs are often incurred by advisers when preparing reports. Examples of these costs include the preparation of interim financial statements and seeking to obtain confirmation from the various investment bodies,” the submission stated.
“This problem is further compounded by the fact that many SMSFs do not have real time reporting systems and preparing interim financial statements can be a costly and time-consuming process.”
Providing a safe harbour would ensure that SMSF trustees have greater confidence in their reporting and also encourage reporting at an earlier stage, the submission said.
“Further, if the safe harbour is supported with a sound mechanism that allows for correction, SMSF trustees may be encouraged to review and report any transfer balance account information on a more regular basis,” it said.
“SMSFs would also feel confident to report any adjustments if they subsequently detect an under reporting when subsequent financial statements bring any under reporting to light.”