This Client Alert is relevant to Clients with an Australian Self Managed Superannuation Fund (SMSF).
At the end of each financial year Blaze Acumen reviews and considers current audit and ATO issues and how these are relevant to you and your SMSF.
As the SMSF trustee, or director of a corporate trustee, you are required by the Superannuation Industry (Supervision) Act 1993 (SISA) and other relevant legislation to ensure you comply with a number of obligations in relation to the operation of your fund including:
- Ensuring the fund is maintained for the sole purpose of providing benefits to the members upon their retirement;
- Trustee duties to act honestly and in the best interest of all members;
- You must prepare, implement and regularly review an investment strategy;
- You must be aware of restrictions in relation to the acquisition of certain assets from members and related parties, compliance with ‘in-house asset’ rules and you need to ensure investments are acquired and maintained on arm’s length commercial terms;
- Record keeping obligations, preparation of financial statements and lodgement of an annual return with the ATO; and
- Appointment of an approved SMSF auditor.
In relation to the audit of your fund it is imperative you maintain and can readily provide all source documents and information relevant to your fund. In circumstances where you are unable to do this the audit of your fund may be delayed and the annual compliance costs for your fund will likely increase.
We note that all approved SMSF auditors must comply with competency, auditing and assurance standards set by ASIC. SMSF auditors are obligated to ensure that funds are in compliance with the relevant laws and to this end the ATO has given guidance on what SMSF auditors should focus on. As a SMSF trustee you should be aware that the SMSF auditor must lodge an Auditor contravention report (ACR) within 28 days of completing the audit if, during the course of conducting an audit, the auditor forms the opinion that a reportable contravention of the SISA may have occurred, is occurring or may occur.
As a result of recent court cases, SMSF auditors are paying greater attention to the detail of some transactions and in particular where there are related party transactions or ‘non-conventional’ investments. Recently the ATO conducted a review of SMSF auditors and identified many cases where auditors had failed to obtain sufficient documentary evidence. As a result, SMSF auditors have become more robust in considering what satisfies ‘sufficient documentary evidence’. Whilst these types of investments often fit well within the investment strategy implemented for the fund, SMSF trustees should consider these issues when assessing the acquisition of ‘non-conventional’ investments both from the record keeping perspective, valuation requirements and the annual compliance and audit cost.
Key SMSF audit focus areas currently include:
- Unlisted Investments:Valuations and holding confirmations – more information will likely be sought to support these investments and to meet additional documentary requirements. Of particular importance is proof of ownership and documentary evidence of valuations;
- Properties:Updated valuations for all properties will likely need to be undertaken (particularly given the current economic environment). You will be asked to provide evidence of the valuation method and whether it is based on objective and supportable data. This extends to properties held by unit trusts in which the SMSF is a unitholder;
- Residential leases:Rent received on all properties will be reviewed to confirm it is consistent with the lease agreements in place;
- Commercial leases:Greater scrutiny will take place on commercial leases, particularly when leased to related parties. Lease agreements will be reviewed to ensure they are current and the rent received is consistent with the lease agreements. Evidence to support commercial rent arrangements will be sought for related party tenants;
- COVID-19:Documentation supporting COVID-19 rent relief or Limited Recourse Borrowing Arrangement repayment relief (where applicable) will be reviewed to ensure appropriate arm’s length evidence is in place to substantiate arrangements; and
- Investment strategies:Recent guidance by the ATO (https://www.ato.gov.au/super/self-managed-super-funds/investing/your-investment-strategy/#) outlines the ATO’s views on investment strategies, your obligations as SMSF trustees and the auditor’s role in checking your fund is complying with the investment strategy requirements under the superannuation laws. Blaze Acumen can assist Trustees with updating or drafting Investment Strategies for their SMSFs.
If you have any questions about your SMSF compliance or any of the above key focus areas relating to your SMSF, please contact your regular Blaze Acumen advisor or any of the following:
Senior Manager 03 9694 3085 firstname.lastname@example.org