It is with some concern, however, that the cost of regulation may soon become a barrier to entry, in particular where these costs are increasing against a landscape across which administration and compliance costs appear to be on the decline.

The Mid-Year Economic and Fiscal Outlook (MYEFO) announced an increase to the SMSF supervisory levy from 1 July 2013 to better reflect the true cost of regulation of the SMSF sector. Along with this proposed increase is a change in the timing to collect the levy, with it moving from an arrears payment to collecting the levy in the year of operation.

Interestingly, this proposed legislative amendment bill has been referred to the Parliamentary Joint Committee on Corporations and Financial Services for its review.

Industry submissions to the inquiry rightly requested details of the cost recovery of the sector by the regulator, ensuring such a significant levy increase reflects the true cost of operation.

Timing of the supervisory levy
With the federal government proposing to move the levy to collection in the year of operation, the timing change will mean a catch-up payment for SMSF trustees. It is proposed to amortise this payment over two years, with the levy to be imposed as follows:

• 2013/2014 – $321, with $191 relating to 2013, plus 50 per cent (rounded up) of the 2014 levy, being $259
• 2014/2015 – $389, with 50 per cent (rounded down) of the 2014 levy, being $259 plus $259 for the 2015 levy

The ordinary supervisory levy would apply from 1 July 2015. It should be noted that the proposed legislative amendment will allow changes to the levy up to $300.

Where is the increased levy being applied?
New powers granted to the Australian Taxation Office would enable the regulator to provide trustees with directions to rectify contraventions and/or directions to undertake education.

At the recent SMSF Professionals Association of Australia’s (SPAA’s) national conference in Melbourne, it was indicated that some 500 SMSF trustees are expected to undertake some form of mandatory education as a result of compliance breaches to their fund.

This training will be conducted online and at no cost – yes, no cost. I liken it to somebody running a red light, being pulled over for breaking the law and then being compelled to undertake driver training, but with the cost added to everybody’s registration fees each year!

It is an unfair outcome for a large majority of trustees who do the right thing.

This proposed change to the levy provides an opportunity to consider whether a flat fee supervisory levy is the most appropriate way to regulate the sector. With funds coming in all shapes and sizes, is there a better way to recover costs?

Here are just a couple of thoughts:

• Could the supervisory levy be risk-rated, whereby the levy is subject to the fund’s previous compliance history? An increased levy for a period of time would effectively put fund trustees onto a probationary arrangement which would incur a higher level for one or more years
• Should the supervisory levy be tiered based on a fund’s value? The regulatory cost for funds with a higher account balance would not have such an imposition as for an SMSF with lower balances.

In referring back to the Cooper Review Panel’s vision for SMSFs, it was that they become remain simpler to operate and manage; operating costs would continue to decline; and SMSFs would be subject to more effective regulation and better governance.

Whilst many won’t object to the need to ensure the SMSF industry remains ‘well-functioning’ it is imperative that such levies reflect the true cost of regulation and don’t become a barrier to entry as individuals take a growing interest in achieving control over their retirement savings.

Aaron Dunn is managing director of The SMSF Academy and a certified practising accountant. He is also Victoria chapter chair of the SMSF Professionals’ Association of Australia (SPAA) and a member of SPAA’s membership and national committees