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I am auditing XYZ SMSF for the financial year ended 30/06/2019.
Personal Concessional Contribution made by a member on 19/6/2019 and allocated as Contribution Reserve in the financials.
Member died before finalization of accounts in 2020.
Intention to claim personal contribution form and Request to adjust concessional contributions (for reserve) not signed by the member and not provided and accordingly SMSF trustees acknowledgement of the forms are also not on records.
I think this is the breach of SISR 7.04.
What is your opinion? What other documents do I need for my audit working papers?
Hi Alkesh
My experience is that most SMSF's do not consider a contribution resderve as they are to complicated. I agree in some circumstances they are of benefit but they must be properly done.
My view is that your example may not be a breach of SIS Regulation 7.04 in that this regulation refers to whether a SMSF can receive contributions.
That is SIS regulation 7.04 refers to the age of members and when they can receive contributions and the type of contributions that can be received.
In relation to SIS Regulation 7.04 as auditor you need to determine (as per the ATO audit report) that:
"Contributions can only be accepted in accordance with the applicable rules for the year being audited".
Of note is that the current SIS Regulations differ to those that applied re the year ended 30 June 2019 as there have been a number of changes to the regulations in relation to the contribution rules.
SIS Regulation 7.04(b) (currently) states that:
"there are rules about deducting personal contributions to a superannuation fund (see Subdivision 290-C of the 1997 Tax Act). In particular, work test conditions apply to deducting certain contributions made from age 67 until the day referred to in subregulation (1A) (see subsection 290-165(1A) of the 1997 Tax Act)."
Re the contribution reserve it is SIS Regulation 7.08 that states:
"the trustee must allocate the contribution to a member of the fund:
(a) not later than 28 days after the end of the month; or
(b) if it is not reasonably practicable to allocate the contribution to the member of the fund not later than 28 days after the end of the month--within such longer period as is reasonable in the circumstances."
Documents normally requested by an auditor as part of reviewing a contribution reserve are:
Trust deed that allows for the reserve
Trustee resoluations re the reserve
Trustee resolutions re allocation from the reserve
Request to adjust concessional contributions form (NAT 74851)
Section 290 notice (notice of intent to claim a deduction)
Ackowledgment by trustee re the contribution
As auditor if the required documentation cannot be provided I would be raising your concerns in your trustee management letter to the trustees. I would raise that any issues with the reseve could lead to excess contribution assessments and ATO srcutiny that could lead to the denial of a contribution being treated as deductible to the deceased member.
A great article re contribution reserves from DBA Lawyers can be found at:
Thanks
THE AUDITORS INSTITUTE