Financial and operating statements, member documents and an audit add up to a long list of tick boxes for trustees.
What an SMSF must do as reporting deadlines loom
There are extensive reporting obligations relating to SMSFs, and the main one is looming in just a few days for some self-lodging funds. An annual return must be lodged with the ATO once the audit of the SMSF has been finalised. This is more than an income tax return; it’s also used to report regulatory information, member contributions and pay the SMSF supervisory levy.
For trustees who lodge their own returns, the due date is 28 February. For trustees who use a tax agent to lodge their return, the deadline is in most cases 15 May.
The lodgement of the annual return is the culmination of a long process of compliance and regulatory reporting. While tardy self-lodgers are now too late to tick all these boxes, tax agent lodgers still have time to get everything done before the final May deadline. Tax agents will generally need all the same information as those who lodged on 28 February and an auditor will need to be appointed at least 45 days before lodging date (or by the end of March).
Here’s what needs to happen:
As soon as practical after the end of each financial year the trustee must attend to a number of financial reporting requirements. These include the preparation of:
- A statement of financial position recording the assets and liabilities of the fund as at the end of the preceding financial year, which is June 30 of the previous year.
- An operating statement recording the profit derived or loss incurred by the fund for that financial year (or part of the year if the fund was not in existence for a full year).
- Member and other statements and reports to be prepared.
An SMSF is required to maintain accounting records. These records are to be kept in a form, with supporting documentation, to enable them to be properly audited. Accounting records need to be retained for five years after the end of a financial year to which they relate.
Once the annual accounts are complete, the trustees must arrange for the financial statements and the accounting records of the fund to be audited by an independent and approved SMSF auditor, registered with ASIC. They must also have a valid SMSF auditor number.
The SMSF auditor is required to review the financial statements and supporting records of the funds and provide an opinion about whether it considers the financial statements provide a true and fair view of the position of the fund.
If the auditor detects any breaches of the fund, it is obliged to report these to the ATO.
In addition, the auditor must assess the fund’s overall compliance with the Superannuation Industry (Superannuation) Act 1993 and associated regulations.
Some of the common issues that oblige auditors to report a breach or caution the client by qualifying the audit and recording the issue in a management letter include:
- Failing to keep sufficient documentation to substantiate activities and transactions of a super fund. It is not enough to provide an Excel spreadsheet of items to the auditor that you wish to claim. You need to have original bank statements, invoices for expenses, etc.
- Failing to retain the documents that established the super fund. A signed trust deed, ATO trustee declarations and establishment minute are just a few of the important documents that need to be kept and maintained by the trustee.
- Failing to ensure there is documented a current investment strategy.
- Failing to hold the assets of the fund in the name of the super fund to ensure separation with the trustees’ personal assets and the super fund.
The auditor must provide the audit report before the due date for lodgement of the annual return, in other words 28 February for self-lodgers and 15 May for tax agent clients. The return must not be lodged until the audit of the fund has been finalised.
Failing to meet the lodgement requirements can result in penalties, including monetary fines (an FTL — failure to lodge — penalty is currently $275 for each period of 28 days that the annual return is overdue up to a maximum of five penalty units, or $1,375). An FTL penalty is also not a deductible expense for the SMSF.
In addition, the ATO has a number of more stringent sanctions which can be applied, including the requirement for the trustees to undertake education, rectification directions, trustee disqualification, winding up of the fund, civil and criminal penalties and the fund being made non-complying.
A non-compliance notice is for very serious breaches of the SMSF legislation. The fund loses its concessional tax rate of 15 per cent and instead a rate of 45 per cent is applicable on income earned by the fund and on the value of the assets held by the fund. Franking credits cannot be claimed, and the exempt current pension income deduction is not available. Any tax or capital losses can’t be carried forward either. These sanctions exist until the fund is wound up or the breaches are rectified and the tax office advises the fund is again complying.
So it pays for advisers to give tardy trustees a push to ensure deadlines are met!
Mark Chapman is director of tax communications at H&R Block.