A. Market Valuations
- Need to ensure SMSF assets are recorded at Market Values
- Cannot rely on council rates and trustee minutes “declaring value”
- Market values need to be supported by appropriate evidence
B. Related Borrowings
- Need to ensure compliance with Safe Harbour Rules in relation to “Related Borrowings” that came into effect on 31 Jan 2017
C. Loan Agreements
- Must be “arms-length” – satisfying SISA Section 109
- Anything described as a “loan” in the balance sheet must be supported by a signed and dated loan agreement on “arms-length terms”
D. High Member Balances (>$1.6 million)
- All pension documents+ condition of release minutes should be received upfront
E. Pension Matters
- TR 2013/5 – “must have a series of Pension Payments”….otherwise cannot claim exempt pension
- When a TRIS converts to an ABP, the audit file need to have “evidence of a condition of release was met”
F. Capital Gains Tax Matters
- Where using Segregation Method CGT relief on cost base, then audit file requires documentation showing how it is applied
- Evidence for assets held at the start of the “pre-commencement period” {i.e. 9/11/2016)
- Audit file requires copy of ELECTION {within copy of 2017 ITR?)
- Where uplifting the CGT Cost Base of assets, then this should be well documented
G. Death Benefits and the $1.6 m Cap
- Auditors now responsible for TRACKING ” Reversionary Death Benefit Pensions”
- Super death benefits paid as an income stream count towards personal transfer balance cap ($1.6m)
- Super death benefits paid as a lump sum not measured against $1.6m TBC & must be withdrawn from super
- Super death benefits must be paid as Reversionary Pensions/Death Benefit Pensions/or Lump Sums
- Death beneficiary MUST ENSURE the value of existing pensions + value of death benefit pensions DO NOT EXCEED the TBC ($1.6m)
- For reversionary pensions, the members have 12 months to COMMUTE part or all, to ensure under TBC
- Any excess must be transferred out of the SF as a lump sum
- Any Death Benefit Lump Sums must be withdrawn from super
H. Other Notes
- From 1 July 2017 – lump sums are not counted as part of minimum pensions
- Auditors responsible for EXAMINING manipulation of $1.6m Transfer Balance Cap.
- New Audit Standards apply from 15 December 2016
- Management Letter reporting – all areas, no exception for materiality
- Updated “Terms of the (SMSF) Engagement” (ASAE 3100), the SMSF Trustee(s) must accept & acknowledge that “The terms of the Engagement must include acceptance and acknowledgement by the SMSF Trustee(s) that they understand their responsibility to provide the auditor”:
- Access to all information such as records and documents that the SMSF Trustee is aware is relevant to the engagement .
- Additional information that the auditor may request
- Unrestricted access to persons within the entity, from whom the auditor determines it is necessary to obtain evidence
I. Target areas by the ATO
- Low Audit Fees (indicative <$400 before GST). The ATO is now on an active campaign to identify SFs with low audit fees
- Auditor independence (TO UPDATE ENGAGEMENT LETTER)
- “Two Fund Strategy” – refer to Article by Peter Hogan “Selfmanagedsuper” Qlll 2017 – Issue 019 – pages 6 & 22
- The ATO has flagged the potential for this strategy to be considered tax avoidance under Part IVA
- Part IVA will apply on a “Circumstance by circumstance” basis Compliance Risk area is SISA 62 – Sole Purpose Test
- MUST DOCUMENT THE REASONING (by Trustee Minutes/Declarations) for using the Two Fund Strategy, based on the “specific circumstances” for each fund.
- CANNOT BE TO PRIMARILY ACHIEVE TAX BENEFITS. What is the “DOMINANT PURPOSE” for establishing s second fund
- Note “incidental tax benefits” VS costs of establishing and running a second fund Legitimate Reasons for using Two Fund Strategy (must be clearly documented) – EG. Blended families, segregated people
- Tax Reasons?? …have assets been placed in “pension phase” that are growth assets?
- Artworks & Collectables – must comply with new rules
- Loans to members (IHA Rules)
- Safe Harbour Rules ended 31 January 2017 & LRBAs, related party loans
- Higher than market value income …. Under tax office scrutiny (Medical rooms rent must be justified and supported with appropriate evidence & executed lease agreement. Note potential for “Special Income”
- Asset Valuations – especially Unlisted Closely Held UTs & Private Coys. Market Valuations must be done accurately and regularly.
J. Other
- Key audit documentation MUST be signed and return to the AUDITOR
- Annual signed minutes (including the appointment of the auditor)
- Annual signed financials/ trustee(s):declaration
- Trustees Representation Letter
- (Updated) Audit Engagement Letter
- Pension Commutation Minutes
- Pension Establishment Minutes
- Investment Strategy (with insurance details), investment ranges cannot be 0% to 100%
- Trustee(s) must document LEGITIMATE REASONS (for using 2 fund strategy)
David Saul | www.saulsmsf.com.au
Managing Director at SaulSMSF
As a long-standing member of the Self-Managed Super Fund Association of Australia Limited (formerly known as SPAA), the peak body for SMSF professionals, David was one of the first in Australia to achieve the SMSF Specialist Advisor™ accreditation from the SMSF Association (formerly known as SPAA).
Latest posts by David Saul (see all)
- How to compare SMSF Auditors - 28 January 2021
- 230 Tax Agents have mis-used SANs in the latest count - 11 January 2021
- Why your Auditor can’t be in your pocket! - 25 November 2020
