Annual Audits of SMSF's
SMSFs are personal superannuation funds where the members are also the trustees. Annual audits are a core part of successfully running an SMSF, so it pays to know what is expected.
Anyone who runs a self-managed superannuation fund (SMSF) must ensure that a registered SMSF auditor audits the fund annually.
- The superannuation legislation requires the Trustee of an SMSF to appoint an auditor to report on the fund’s operations for the financial year.
- The audit provides an independent opinion on whether the fund’s records are kept correctly and maintained solely for members’ benefit. Ultimately the audit is to ensure compliance with the law and safeguard the retirement income of the fund's members
- SMSF trustees (or their tax agents) can’t submit their annual tax returns until the SMSF audit has been completed. If these details are not completed, including auditor details, the ATO will reject the lodgement of the fund’s return for the year. This can have a wide-reaching impact with significant financial and legal consequences.
It sounds pretty straightforward — but as with many things SMSF, it can be more complicated than it looks.
The serious business of running an SMSF
Auditors are given detailed instructions on planning, conducting, and reporting an SMSF audit and encouraged by the ATO, to quickly identify and rectify actual (and potential) breaches of the legislation and “self-report” rather than wait for the ATO to investigate.
- Auditors are also given a list of ‘reportable breaches’ that must be reported to the ATO.
Below is a list of ‘reportable breaches’ of the governing legislation; the SIS Regulations and SIS Sections.
Reportable SMSF Breaches for the SIS Regs
| Reg | Regulation title | Reg | Regulation title |
|---|---|---|---|
| R4.09* | Investment strategy | R7.04 | Acceptance of contributions |
| R4.09A | Separation of assets | R8.02B | Valuation of assets |
| R5.08 | Minimum benefits | R13.14 | Charges over assets of the fund |
| R6.17 | Restriction on payment of benefits | R13.18AA | Investment in collectibles and personal use assets |
Reportable SMSF Breaches for the SIS Sections
Complying With the SIS Act
Although SMSFs must comply with all of the SIS Act and Regulations, the ATO lists specific sections that must be audited for compliance. It also has a set of tests to decide whether there has been a contravention that the auditor should report.
Sections from the SIS Act where breaches are generally reportable
| Section | Section title | Section | Section title |
|---|---|---|---|
| S17A* | SMSF definition | S83 | In-house assets – prohibition on further acquisition |
| S35C(2)* | Trustee to provide documents | S84 | In-house asset rules must be complied with |
| to the auditor | |||
| S52(2)(d) or R4.09A | Separation of assets | S85 | In-house assets – prohibition of avoidance schemes |
| S62* | Sole purpose test | S103* | Minutes and records |
Getting used to working with your Professional Advisors
Running a successful SMSF requires trustees to become familiar with working with their professional advisors. Mistakes and errors are common. To err his human. When they are uncovered be ready to engage the ‘team' — Financial Advisors, Lawyers, Accountants, and Auditors.
Each professional works within their own area of expertise to serve the Trustee.
- Only a financial adviser can give financial planning advice. e.g., investment strategies, liquidity insurance, diversification, and reversionary pensions.
- Only lawyers can give legal advice.
- Only accountants can deal with certain matters. e.g., the accountant preparing the SMSF tax returns is not an auditor. The accountant does not test the information provided.
- Only SMSF auditors can audit.
Trustees of an SMSF need to regularly work with their team of professional advisors to keep their SMSF working in an efficient and straightforward manner, to build wealth for a comfortable retirement. Its management can last for decades and involve making decisions that can make or break a financially comfortable retirement income.
How we can help
Running an SMSF can be a way to take personal control over your retirement planning, get exposure to different investment markets, and be an important consideration for many Australians actively planning for their retirement.
Contact us for a confidential chat about your needs.
