SMSF REGULATORY CHANGES
We want to update you on some of the changes that are occurring with SMSFs. These changes do not affect the tax benefits that you are obtaining from having an SMSF. They are required by the regulators and are administrative but are compulsory and thus must not be overlooked.
ACCOUNTING AND AUDIT EXPENSES
The story goes that the partners of the large accounting firms had the accounting and admin for their SMSFs done by their firm’s staff for free. The ATO felt that this was a problem as the amount in the fund would increase faster than it should if the fund had expenses. They thus came up with NALE which is Non Arms Length Expenses. There already was a section dealing with NALI or Non Arms Length Income which is taxed at the top individual rate of 45% rather than the 0% or 15% normal super rates. The NALE legislation starts from 1 July 2018 but the Taxation Office has agreed to not apply the penalty rate for the 2019 to 2020 years. Many of our funds had their accounting included with the other services provided by us which was paid by their business entity with a credit for the GST thereon. For our work for the 2020 year we will be issuing separate invoices to the trustees of the SMSF and these must be paid by the SMSF. We also will be making an estimate of what part is for the audit and shown separately. This audit figure also appears in the super fund income tax return. In past years where this was not paid by the super fund the amount was zero. There was a rumour that some tax agents were lodging super tax returns stating that an audit had been completed when in fact it had not. This type of misbehaviour sends regulators into a frenzy as it is a direct challenge to their authority. Thus the ATO also went into a frenzy and one way they thought that they could find the culprits was to look for any zero audit fees reported. They of course found many but on enquiry the audit had been completed.
INDEPENDENCE OF AUDITORS
Accounting and auditing standards are set in Australia by the Accounting Professional and Ethical Standards Board and the Australian Auditing Standards Board. Both boards are required to set standards that conform with pronouncements of the International Federation of Accountants. Thus after lots of regulators and academics have thought about this we now have APES 110 Code of Ethics for Professional Accountants (including Independence Standards) issued in November 2018 and 211 pages long. Clause 601.4A1 states that auditors can provide accounting and bookkeeping services that only are routine and mechanical. The Taxation Office has then issued correspondence that states it now requires the auditing function and the accounting function to be done by separate firms. There are pages of other threats to independence of the auditor in APES 110 that do not apply in your situations. Peter Vickers & Associates thus has to evaluate what service to provide to our SMSF clients. For most of our SMSF clients, we also provide accounting services to their businesses and the members. Unless the client prepares the accounts themselves, we have decided that we will find another registered auditor to audit your fund. We will thus prepare the accounts, the tax return and the audit work papers and then engage an auditor on your behalf. It is expected that the auditor will just have to read the accounts and work papers and then sign off on the audit for a nominal fee. In the likelihood that a contravention report must be issued we will prepare and lodge it. There will be an increased cost in running your SMSF but we do not expect that it will affect the benefits of running your own SMSF.
Our firm has 4 registered SMSF auditors so for clients and other accountants that prepare financial statements for SMSFs we are still able to act as auditors
Our political comment is that businesses and small companies are not required to be audited so why bother about SMSFs specially that those in pension phase pay no tax. So what harm can be caused to consolidated revenue? There was a famous case, Coles Myer Finance Ltd vs FC of T where the taxable income in dispute was around 5 million and this company was audited. Thus the audit, even by a big four firm, has little relevance to the correct tax payable. The uselessness of the compulsory actuary’s certificate is still there.
Our greatest benefit to you is the advice that we can give you.
The team @ Peter Vickers Business Group
If you’d like more information on how these changes will affect you , or more broad advice on how to grow your SMSF, please contact one of our SMSF and investing experts using the button below.
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