Déjà vu. That sensation that we've been here before – which we have. Plus ça change...

But related party transaction issues still pop up in SMSF audits coming across my desk.

And the major cause – property.

The three major stumbling blocks for most trustees:

1. Blurred lines

It is okay for there to be transactions between SMSF trustees and related third parties. Provided that the relationship is at arm’s length.

That there is no conflict of interest between the commercial interests of the SMSF and the third parties.

Transactions must be at a fair market rate.

2. Missing clearly documented commercial arrangement

A written or verbal understanding does not constitute transparent arm’s length commercial arrangement. If anything, it reinforces the blurred lines.  

The easiest way forward: formal written leases and documented evidence that trustees have established a market rate.

Given that property investors are on the ATO hit list this year, it is worth getting their house in order.

Else they may get picked up in the net sweeping for excessive deductions.

3. Clear financial records

Beyond just the commercial agreement, auditors want to see consistent, clear financial records.

Evidence of regular payments into the SMSF, rent reviews and increases. In the current rental crisis, it is important to show that due consideration has been given rental increases, at least in line with CPI.

As with most SMSF compliance the ATO, and by default the auditors, want to see clear documented evidence.

It is a bit of work – but much cheaper than the penalties.

As always if you are at all concerned about any of this just give us a call, on 1300 874 787.

The last thing any of us want is your trustees in trouble.

Get bang up to date on SMSFs in 2024/5:

Coming to a venue near you in October / November – the big issues and key technical updates on all things SMSF in 2024.

Your free briefing includes:

• • 1.5 hours of training – 1.5 CPD points
  • Q&A session
  • Pre-audit checklist
  • Full training notes
  • Continental breakfast

Bookings are essential so sign up today!