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Member withdrew 10K from their SMSF in financial year 2020 and financial year 2021 without ATO determination letter (Covid 19 early access). My understanding is that client can not obtain the determination now since the application process was closed in Dec 2020. Their SMSF net assets is 426K and SMSF is in existence from 2008 onwards and there was no contraventions before.
Questions are
2020 and 2021 audit is happening now and do we need a contravention report for year 2020 and year 2021 for this withdrawal. Alternatively a qualified audit report and management letter point is sufficient and not a contravention report?.
Does the member needs to repay this amount now back to SMSF with interest
Hi Antony
My view is that you should lodge Audit Contravention Report (ACR) in relation to the 2021 year.
You would do that as per the ATO's instructions:
"Test 4: Trustee behaviour test
You must report a contravention of a section or regulation listed in tables 1A and 1B where an identified contravention from a previous financial year has not been rectified at the time of the current audit.
Where the event contravenes a section or regulation only at the time it occurs (for example, a section 66 contravention), but it remains unrectified in the following years, it should continue to be reported. Even though the contravention does not actually occur in the following years, it should be reported under the section that was originally contravened."
That is my view is that as a breach occured in the 2020 year and was not rectified in the following (2021) year you are required to lodge an ACR.
The sections / regulations breached are:
Section 65 - lending / financial assistance to a member.
Regulation 6.17 - restriction on payment of benefits.
Yes interest should be paid on the amount withdrawn from the Fund.
My view is that a qualified Part B audit report would be issued for both the 2020 and 2021 years and you would raise the breach in a trustee / management letter.
Thanks
SMSF AAA