SMSFs have from 1 October 2021 been covered by the SuperStream rollover standards. However, there has not been that much published on this topic; nor the issues relating to SuperStream.

This article seeks to provide an insight to some of the “good, bad and the ugly” aspects of the SuperStream standards from an SMSF perspective.

Why was SuperStream for rollovers introduced?

There was a concern that certain large funds were taking their time rolling over members benefits. This is hardly surprising given large funds obtain fees from having funds under management.

SMSFs must generally rollover within 3 business days of a request

A trustee is required to action a rollover request as soon as practicable and generally within 3 business days (reg 6.34A of the Superannuation Industry (Supervision) Regulations 1994 (Cth); SISR). If the trustee requires information from the receiving fund to progress the rollover, the trustee must request that further information from the member within 5 business days of receiving the member’s request. If the trustee does not receive that further information within 10 business days, the trustee must make further reasonable enquiries of the member.

Can SMSFs comply with these strict deadlines?

Many SMSFs do not maintain their financial statements on a real time accounting basis and this may prove to be a hurdle for many SMSFs. In comparison, large industry and retail superannuation funds typically maintain ongoing daily accounting updates with daily unit pricing with ample cash on hand for paying rollovers on a timely basis. 

SMSFs will therefore generally need to prepare interim financial statements or special accounting records so that a reasonably accurate rollover amount can be determined quickly that reflects an allocation of net earnings (or net losses) and movement in capital values adjusted for tax, etc, up to the time of the actual payment of the rollover. As most SMSF advisers will be aware, this can involve considerable time and is unlikely to be completed with the tight deadlines mentioned above (eg, 3 business days). Invariably, it takes significant time to gather the relevant information, arrange for the accountant to prepare the information and then to obtain trustee feedback. Accordingly, many SMSFs will need to plan ahead for a rollover to ensure the relevant work can be prepared in a timely manner.

Where there is a family dispute such as separating spouses or a ‘rift’ between a parent and a child who is a member of the same fund or dispute with another member, the tight timeframes are likely to prove very challenging.

On the other hand, partial rollovers are generally easier to manage where the amount rolled over is well within the member’s account balance and sufficient liquidity and cash flow in the fund exists. However, this also assumes the fund has sound records of the members tax free and taxable components, cost base and current market value records for each asset, eligible service dates, etc.

What must an SMSF have to undertake a SuperStream rollover?

A rollover can be initiated by a member via a request to the transferring fund (including an SMSF or industry/retail fund) or the receiving fund (including an SMSF or industry/retail fund). A member can also initiate a rollover request via their myGov portal. A member can rollover all or part of their benefit.

 An SMSF must, among other things, have:

• An electronic service address (ESA). You can get an ESA from certain SMSF software platforms (eg, BGL, Class or SuperMate). The ATO also provide a list of ESA suppliers.
• A unique bank account recorded with the ATO.
• A Unique Superannuation Identifier (USI) which for an SMSF is the fund’s Australian Business Number (ABN).
• The approved information ready to complete:
• the SuperStream process for a rollover of a member’s benefit; or
• a Rollover Benefits Statement for a rollover involving an in-kind asset rollover.

SMSF verification service and confirming member details

The SMSF verification service (SVS) process involves validating the receiving fund’s details including seeking confirmation that the person is a member of that fund. These requirements protect the security of the rollover and ensure the money is transferred to the correct fund, especially given the risks of cyber-crime.

Where a rollover is being made to another SMSF the trustee of a transferring fund must via the SVS confirm, among other things, the receiving fund’s ABN, ESA and unique bank details to facilitate electronic payment and that the person requesting the rollover is a member of the receiving fund.

If the transferring fund is unable to verify all of the prescribed details with the receiving fund within 5 business days, the transferring fund must request that the ATO verify any missing details. If the ATO is unable to verify any missing details within 10 business days, the trustee must notify the member of the outcome of the Commissioner’s enquiries.

Further, a transferring fund must use the SMSF member tax file number (TFN) Identity Check Service (SMSFmemberTICK) to validate the relevant member’s TFN.

If the transferring fund is rolling a member’s benefit to an APRA regulated fund, the transferring fund must use the fund validation service (FVS) to obtain the APRA fund’s details such as the fund’s bank account.

Payment reference number

A unique payment reference number is generated by SuperStream compliant software. The payment reference number is confirmation that the relevant checks referred to above, eg, the SVS and SMSFmemberTICK for a rollover to an SMSF or FVS for a rollover to an APRA fund, have been completed via the SuperStream system. However, you should check with your particular software supplier whether the relevant checks have been successfully completed without any outstanding error messages.

Once the above verification checks have been successfully completed (without any error messages), the actual rollover payment can be made by the usual bank transfer with the unique payment reference number for the particular rollover for the member in question. For example, the actual rollover payment is made via the Fund’s usual bank electronic funds transfer or similar payment protocol and the unique payment reference number for the member links that payment to the relevant rollover. The actual payment is not processed via the SuperStream system; only the prescribed exchange of data and validation checks that result in the payment reference number.

It is important to note that each rollover has to be documented separately and if there are, for example, two members rolling over at or around the same time, each member’s payment must be paid separately for SuperStream purposes as the payment reference number is required to be linked to the rollover for the relevant member.

Naturally, prior to making a rollover payment, the transferring fund should obtain verification that there is sufficient money available to be in a position to make the payment. 

ATO alerts member of rollover requests

The ATO will send alerts via email or text message to members when their fund uses SVS to authenticate details prior to making a rollover. Indeed, members may receive multiple alerts even for a single rollover as funds may use SVS multiple times when processing a single rollover request.

If a person receives an alert, but did not make a rollover request, they should contact their existing super fund immediately to see if any cyber-crime is involved; especially as rollovers must generally be processed within 3 business days. The ATO alerts were designed to minimise the risk of cyber-crime by giving the member a ‘heads up’ that a rollover is imminent. 

Disclosure to members

A receiving fund that receives a rollover request has an obligation to ensure the member is aware that they can ask the trustee for information that the member reasonably requires for the purposes of understanding: 

• any benefit entitlement that the member has in the transferring fund;
• any fees or charges that may apply to the proposed rollover; and 

• the effect that the proposed rollover will have on any benefit entitlements (eg, whether the member will have any further balance or insurance cover in the fund).

If a member is transferring their super to a new super fund, then the receiving fund should supply the new member with a product disclosure statement (PDS) in compliance with the Corporations Act 2001 (Cth). Additional information to what is available in the fund’s PDS should also be supplied if it is not covered in the PDS. 

In an SMSF context where the relationship between the departing member and the other members has deteriorated, there may be suspicion as to whether the departing member is obtaining their proper entitlements and the transferring fund may be requested to prove its calculations and the market value of assets, allocation of net earnings to the date of payment, etc.  For this reason, ideally if time permits, a transferring fund should provide a copy of the details relating to the rollover (eg, the amount and the split between the tax free and taxable component) to the member to confirm prior to finalising the rollover payment.

A trustee of a receiving fund should also provide confirmation to the member of the rollover details.

The member can then check the rollover details from the transferring and receiving funds and make more informed queries.

SMSF auditors

Failing to comply with the SuperStream standards can easily result in an auditor contravention report (ACR), that may result in a significant penalty (minimum penalty for FY2022 of $4,400 per SMSF trustee; naturally, it’s much better to have a corporate trustee).

In particular, if a trustee fails to comply with the rules in Division 6.5 of the SISR, this is a contravention of the ‘payment standards’ in Part 6 of the SISR, in particular reg 6.17. As reg 6.17 is a reportable contravention, auditors will need to obtain sufficient appropriate audit evidence to form an opinion on whether the fund has complied with the rules in Division 6.5.

The ATO requests that where the SMSF is the transferring fund of a rollover, auditors must obtain evidence confirming:

• the SMSF received the rollover request (which would have come from either the member, the receiving fund or the ATO) which was made via SuperStream (eg, a printout from the trustee’s software provider); and
• the rollover occurred no later than 3 business days after receiving all the information required to process the request.

Where the SMSF is the receiving fund of a rollover, auditors need to obtain evidence confirming:

• where the rollover request was received by the SMSF directly from the member, the SMSF trustee has used SuperStream to request the rollover from the transferring fund (eg, a printout from the trustee’s software provider); and
• the rollover was allocated to the member within 3 business days after it was received, and all information was received to enable it to occur.

The ATO expect that where a member requests a rollover to or from an SMSF and an approved SMSF auditor identifies non-compliance with the rules in Division 6.5 of the SISR and therefore a contravention of regulation 6.17 when conducting the annual compliance audit, the auditor is required to:

• notify the fund trustee(s) in writing;
• providing the reporting criteria is met, report the contravention to the ATO via an ACR at Section E (Contraventions) and describe the event as a failure to comply with the SuperStream rules; and
• modify Part B of the SMSF Independent Auditor’s Report if the contravention is material.

Liability concerns which may also expose advisers

Note that an SMSF trustee and anyone involved in a contravention of the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA) and SISR including an adviser may be liable if a rollover is not undertaken in compliance with the SISA or SISR (which includes the SuperStream standards). Most SMSF deeds require compliance with the SISA and SISR and such a contravention may also result in the trustee and, in the case of a corporate trustee, also its directors being exposed to personal liability.

One risk in this regard relates to the strict time limits that apply to rollovers. For example, if a member’s account balance decreases (for example due to an overall market fall) after a rollover request is made and a rollover is not paid within the prescribed time period, the departing member may feel others have contributed to this decrease and seek recovery from the trustee, its directors and anyone else involved in relation to that loss.

Naturally, such matters are complex and depend on many factors. Specific legal advice should be obtained in relation to the SMSF deed and the particular risks that relate to rollovers where the member may seek to take legal action.

Will SMSFs fail, incur penalties and extra costs?

Broadly, the SuperStream rollover rules were designed for large APRA funds and have then been imposed on SMSFs without much consideration for the circumstances of SMSFs. Many SMSFs are bound to fail under the strict time deadlines as many SMSFs do not have accounting systems that can produce the required information within 3 business days. Many accountants expect months to prepare a set of draft accounts these days. However, some funds maintained on real time systems and data feeds may be better placed to at least have a chance of satisfying the 3 business day deadline.

This places SMSF trustees and advisers at a real risk of ATO scrutiny and incurring significant additional costs in undertaking a rollover if they fail or overlook the 3 day deadline. SMSF auditors are directed to lodge an ACR with the ATO if the 3 day period is not satisfied. Some costly follow up work responding to SMSF auditor and/or ATO enquiries may be needed to seek to minimise the risk of a significant penalty. 

Corporate trustee a must before doing a rollover

It is highly recommended that every SMSF has a corporate trustee before undertaking a rollover to minimise the ‘no fault’ administrative penalty that can easily be imposed if say the rollover occurs in contravention of the SuperStream standards. For example, an SMSF with a mum and dad as individual trustees will pay $8,800 by way of administrative penalty whereas mum and dad as directors of an SMSF corporate trustee will only pay $4,400.

Conclusions

Given the strict SuperStream deadlines and the likelihood of disputes between members and therefore delayed rollovers, we would expect many SMSFs are bound to fail. 

The ATO has indicated that it will take a more educative approach in the initial transitioning phase of SuperStream. Nevertheless, SMSF trustees and members should do their best to comply with the strict rules and time frames to minimise unnecessary costs and anxiety.

Shaun Backhaus, senior associate and Daniel Butler, director, DBA Lawyers