ATO crisis comes amid signs of stress over new super changes

ATO staff were struggling before the latest scandal.

Will the Australian Taxation ­Office be able to manage the huge changes in superannuation and tax coming down the line?

There are signs the ATO is troubled on many fronts and the key concern among investors is that they will ultimately pay the price for an agency that just now is looking overextended, understaffed and suddenly staggering under the weight of what may be the biggest fraud investigation in its history.

The spectacular sight of a deputy commissioner of the ATO, Michael Cranston, facing allegations he abused his position by seeking information about a wider investigation into a fraud allegedly involving his son Adam Cranston has transfixed wealth professionals this week.

Perhaps more worrying than the fraud itself — expected to run to more than $100 million — is the allegation that information systems inside the ATO may have been breached by senior staff — it is understood four ATO staffers have already been stood down.

The question has to be asked: how often does this sort of thing go on … and how easy is it to do?

Moreover, it goes without saying that a fraud investigation at the very top of the Australian Taxation Office is going to be a major distraction for the rest of the agency in the months ahead.

Yet even before this week’s bombshell there had been mounting questions on whether the ATO — the core agency for the management of self-managed superannuation funds — can cope with the slew of changes to superannuation due on July 1.

Among those changes are complex new contribution rules and the historic introduction of a tax-free limit on pension payments through the imposition of the so-called “super cap”.

What’s more, the system received two significant extra complications in the federal budget a fortnight ago:

(1) The arrangements for early withdrawal of super to fund first-home buyer deposits; and

(2) The arrangements for allowing variations to new super contribution rules for seniors who are “downsizing their homes”.

Just days before news broke of the ATO fraud investigations ­separate reports had emerged of government officials clearly lacking in the ability to understand or interpret the latest superannuation changes.

An internal survey at the ATO created to monitor skills standards in the agency appears to have provided very concerning results to the mandarins at the top of the ­organisation. Leaked details from the survey show staff expressing concerns about “the level and availability of subject matter ­expertise”.

The ATO confirmed the survey did take place, telling The Australian: “The ATO regularly seeks feedback from its staff to help us to identify ways to better support their wellbeing, engagement and career development. We are confident in the capacity and technical capability of our staff in the superannuation area to deliver on our forward work program.”

Which is just what you might expect the office to say except it is interesting there is no attempt to challenge the obvious difficulties anyone — inside or outside the ATO — would have with what is now a desperately confusing super system.

Additionally, there is hard evidence the dwindling staff numbers at the agency could be cause for concern. While the superannuation system gets considerably more complex from this year onwards and the numbers in SMSF funds push past one million people, the ATO has been cutting staff dramatically inside the very unit where work has expanded dramatically.

In 2012, the superannuation division of the ATO had more than 1131 staff. Today it has 700. There is, of course, no evidence ­either that more public servants equals better service — but it is worth pointing out the attrition rate at the superannuation division is moving twice as fast as the rest of the tax office.

In the middle of this mixed picture the ATO (in conjunction with the Australian Securities & Investments Commission) is trying to crack down on the shadier end of the SMSF sector where bewildered investors keen to use their superannuation to get into the property market are easy prey.

ASIC is checking on newly opened super funds to examine whether they received formal advice and particularly whether the funds are heavily weighted towards residential property investment.

Like many ideas in the wider area of regulating super it all sounds very well but it becomes unconvincing if we hear that behind the scenes the ATO officials cannot understand the system they are trying to police — in this case the role of the ATO is to notify ASIC when new funds begin.

Meanwhile, the budget also announced the creation of a superannuation “supercop”, a new agency to begin work in 2018. Scott Morrison is calling the agency a one-stop shop that will replace three existing offices that work in the area.

But questions abound on the nature of the agency — is it a tribunal or not? Is there an appeals process ? (After all we have a legally mandated super system.) Where does the ATO fit in?

It all adds to an overall impression that the ATO — the agency that monitors and polices the SMSF system — is in a state of flux, which is exactly what you do not want when you are introducing the biggest set of reforms seen in more than decade.