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Auditors Institute

Oct 24, 2020

Edited: Oct 29, 2020

Differed Income Tax Liability

in SMSF Technical Forum

When auditing SMSF Financial statements I see some accountants record DTL while other ignore this. My understanding is it is not a compulsory standard for an SMSF to follow but ignoring any potential liability will have an impact on member balances and potentially minimum pension calculations. Also different impacts when member balances are in accumulation, pension and when there are both pension and accumulation. Your thoughts please?

John Tsolakis

2 answers0 replies

Comments (2)

THE AUDITORS INSTITUTE

Feb 11, 2021

Hi, I agree there is no requirement to do tax effect accounting (& record a FITB or PDIT / DTL) on the basis that a SMSF is a non reporting entity and it does not have to follow accounting standards (& do general purpose financial statements). The financial statements are special purpose financial statements prepared to meet the requirements of the SIS legislation, the Fund's deed & the members needs. If a Fund was paying an account based pension (in retirement phase) there should be no tax effect accounting impact as there is no tax payable re this account. That is there would be no FITB or PDIT (or deferred tax liability) impact on the pension account & it would not impact the pension payable.

Every Fund should be reviewed to see if tax effect accounting should be recorded. An example of a time to take up a PDIT is when a Fund is in accumulation mode & there is a large unrealised gain re an investment. Taking up a PDIT would recognise that there is the potential for a future tax liability & this may assist the Trustees in making decisions about the investments.

SMSF AAA

Brian Johnson

Oct 31, 2020

HI John,

I agree that the standards do not require SMSF accountsto calculate Deferred tax liability Yes this will affect the member's balance and therefore the amount of pension he need to take each year. However wouldn't it reduce the pension and so if the fund has the cash and can pay the minimum pension there should be no problem ?