What’s the latest news in SMSF?
The big news in SMSF auditor circles is the recent disqualification and suspension of auditors. Let’s take a look at the impact ASIC’s decision might have on auditors and trustees.
Plus, a reminder that Quarterly TBAR Reporting is due on 28th April – details below. If you or your clients are reporting TBAR annually, then it’s due when your annual return is due.
And lastly, we’ll look at the EOFY planning for anyone who wants to get in early.
But first! The big news:
ASIC has disqualified or suspended 7 SMSF auditors
In early March, SMSF Adviser released an article reporting on the recent disqualification and suspension of SMSF auditors. With these decisions, ASIC has sent a shockwave through the SMSF auditing profession.
- Two SMSF auditors were disqualified for not auditing their own personal SMSFs, and misusing their auditor numbers to lodge incorrect annual returns.
- One auditor had their registration cancelled for not complying with professional development requirements, for not holding appropriate professional indemnity insurance, and for failing to lodge annual statements for two years.
- Another auditor was suspended for two years for not complying with independence requirements. His own staff had prepared the accounts and financial statements for the SMSFs he audited.
- One of the disqualified auditors also failed to obtain audit evidence on property valuations and title of assets, which were not held in the name of the trustee.
With these recent disqualifications and suspensions, ASIC has proven it is not messing around.
ASIC and the ATO are sending a strong message that they take superannuation very seriously, and they expect accountants and auditors to follow the rules. They’re making the point that the rules are in place to protect trustees’ super balances and keep the system fair for everyone.
What does this mean for SMSF audits in the future?
At this stage it’s too early to call, and I’ll be watching the developments over the next few months. For everyone who is already doing things by the book, it’ll likely be business as usual.
However, these disqualifications will make many auditors take a closer look at their processes. And that’s a good thing for trustees. It means that trustees will get more careful audits, and proper independent checks.
I’ve written about the ATO’s crackdown on auditor independence before. It’s simply not worth the risk for auditors to conduct audits within their own accounting firm, or to conduct reciprocal audits with another firm.
But on the other hand, these crackdowns might mean that trustees will shoulder an increase in audit costs.
If accountants and auditors can’t do an “I’ll scratch your back if you scratch mine” reciprocal audit, trustees will have to pay for a truly independent audit and it may cost more. (That said, it’s possible to speculate that affected trustees are already paying high prices for an “independent audit” when actually it’s happening under the table in-house.)
With the recent crackdowns, auditors will need to take more time to check on every tiny detail of the SMSF. Good auditors are already doing this well. Low-cost and semi-automated audits will be out of the question, because they may not be thorough enough to comply with tightening regulations.
Plus to add fuel to the fire, in late 2018 there were two court cases in which auditors were held liable for losses in SMSFs. These findings now place significant pressure on SMSF auditors to find every error and check every line of the investment plan, lest they should be liable for undiscovered errors and resulting losses. It’s a high burden of responsibility, which could also send auditors’ professional indemnity premiums through the roof.
And now for some gentle reminders about upcoming reporting deadlines:
Quarterly TBAR reporting reminder
Quick update: What are reportable TBAR events?
- Commencement of retirement phase pension
- A TRIS becomes an Exempt TRIS
- Full or partial commutations of a retirement phase pension
- Certain LRBA loan repayments that result in value shifting between accumulation and pension interests
- Ceasing of an income stream
- Compliance with a commutation authority
- A structured settlement contribution
Importantly, retirement phase pension payments do not need to be reported.
When do you need to report?
1. If no members have a balance of $1M or more at the test time:
SMSFs must report events that affect their members’ balances. If no event occurs, there is nothing to report. Most SMSFs with no member balances over $1M will report annually; due when the 2019 SMSF annual return (SAR) is due (check exact dates on the ATO website closer to the time).
The test time is the later of:
- 30 June 2017, if a member had a pre-existing pension or commenced a pension during the 2018 year.
- 30 June of the income year before the first member of the SMSF commences a pension.
2. Any member has a balance of $1M or more on 30th June in the year before the member starts their first retirement phase stream, the fund must report quarterly:
They must report events affecting the members’ transfer balances within 28 days after the end of the quarter in which the event occurred. This means:
- if any member had a balance over $1M at 30th June (in any year – eg. 30th June 2018)
- and the member has since started their first retirement phase stream after 1st July (the next financial year, eg 2018-2019
- and any transfer balance event occurred in January to March 2019
- then the report for this quarter is due on 28th April 2019
See also When you need to report sooner on the ATO website.
ATO Hot List: FY 2019 tax and
What do you need to look for this financial year?
1. Total Super Balances (TSB)
Review members with total member balances over $1.6M in FY 2017-2018. Their ability to make and receive certain contributions may be limited. See ATO Guidelines for more information.
2. Concessional Contribution Caps
A reminder that concessional contributions for all are capped at $25,000. And a work test still applies for those members age 65 or over at time of making the contribution. See ATO guidelines for more information.
3. Personal Superannuation Deductions
Individuals can now claim a deduction for personal contributions to super even if employed, up to the combined concessional limit. Review clients that may wish to make use of this change. See ATO Guidelines for further information.
4. Non-Concessional Contribution Caps
Accountants need to be aware of what cap may apply to their clients. Have they triggered a transitional cap under the previous rules or do they start afresh with the new cap limits? Or does their Total Super Balance restrict their ability to contribution? Sound complex? Yes, it can be. See ATO guidelines for more information.
I hope this gives you enough information to convince your clients of the value of a detailed and high-quality SMSF audit.
As always, if you need help with your clients’ funds, don’t hesitate to contact Joel Curry at TriSuper Auditors on 1300 TRISUP for further info.