What to do to protect your SMSF from fraud

Beefed up proof-of-identity rules aim to protect SMSFs from scams but will mean more paperwork for trustees.

It seems that a new scam is reported every other day and, not surprisingly, both the government and private organisations are becoming more careful when it comes to knowing exactly who they are talking to.

A few years ago, directors of all companies (including SMSF trustee companies) were required to get a director ID. This is a unique number issued to each person that is a little like a tax file number, except that it is only required by people who are directors of companies.

That came about to help the government identify when someone might be setting up dodgy companies, going broke and then popping up somewhere else, which is called “phoenixing”.

This financial year, we’ve seen two separate, yet related, changes that affect SMSF trustees. Both are aimed at making sure the fund’s tax agent can be confident they are dealing with real people and not scammers.

If you’ve never been asked to do these things, it’s probably because you haven’t changed your fund’s tax agent recently, or other things about your fund (such as your trustee structure).

You might fit into the “well-established” client category. However, it’s likely that you’ll be called upon to prove your identity at some point, even if it’s simply to add another person as the director of your corporate trustee. So, it’s worth knowing what that might look like.

Selfie required

The first change is that the Tax Practitioners’ Board requires tax agents to verify the identity of all the people they deal with.

Fortunately, there are several ways to do this, including using online services specifically created for this purpose, such as “document verification services”.

DVS providers allow you to enter your personal information, such as passport number, licence number et cetera into a secure system to prove your identity. They can then confirm to the tax agent that you really are who you say you are.

The second, and more recent, means that when an SMSF moves to a new tax agent, there is a more comprehensive process (again involving proof of identity) to go through to link up with that new tax agent.

In the past, this bit was simple when it came to changing accountants – the trustee could simply sign a letter authorising the tax agent to add them to the tax agent’s list. But trustees now have to take far more onerous steps.

First, they have to set up myGovID (which is different to myGov that you might use to do your personal tax return) and prove who they are.

Someone who has a corporate trustee will have already done this – it’s the same system they needed to set up before applying for a director ID.

If you haven’t set up myGovID before, it can be tricky. You’ll need to download an app on to your phone – ideally a personal phone rather than a work one. An email address will be required. Again, make sure it’s a personal one so you don’t have to change anything if you move jobs.

You’ll need to provide information about yourself that other people wouldn’t normally know from two official Australian documents. The sorts of documents that could be used include your driver’s licence, passport, birth certificate, medicare card (not all will be required, you only need two).

Hot tip

Unfortunately, just knowing your mother’s maiden name won’t be enough. And on the subject of names – it’s important that your name is exactly the same on all the documents you use and myGovID.

And there’s another snag. To apply for a director ID, it’s only necessary to have given the system enough information to have a “standard” level of identity strength. But using the various services needed to link up a new tax agent requires “strong” level.

So, even if you’ve already set up myGovID, you might need to upgrade your strength via the app. This step needs a selfie that the computer can recognise as you when it compares it to government databases.

(I have to confess this took me several attempts. I blame very unflattering licence and passport photos.)

The next part is using another ATO service called “relationship authorisation manager” to link your myGovID to the Australian Business Number of your SMSF. If you’ve never heard of RAM, don’t be surprised, it’s a service that’s used by businesses, not individuals.

Weirdly, for this purpose, your SMSF is being treated like it’s a business. If your fund has a corporate trustee, unfortunately you may even need to make a phone call to the ATO at this step of the process – your new tax agent will be able to provide you with the details.

A hot tip from friends and family I’ve surveyed about this step – it’s definitely worth switching to a computer rather than phone to access RAM.

Only one trustee/director needs to do this – they become what’s known as the “principal authority”.

Finally, the principal authority uses the ATO’s “online services for business” to formally request their new tax agent becomes the agent for the SMSF (and the agent will have to accept the request).

Remember, if you’re already a “well-established client” of your existing tax agent, this won’t be relevant for you immediately. Chances are it will be in the future, but not right now, and hopefully the system will be improved over time.

This article was first published in the Australian Financial Review on 24 November 2023.