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I am auditing a fund that had two individual trustees. One trustee died and a new second trustee (family member) was duly appointed. The death benefits were paid out leaving a single member in the fund of approx $5m. The new trustees changed the names on the bank accounts but not for the public unlisted managed fund that represents about 85% of the gross assets of the fund. This means that this investment has effectively only one individual trustee listed as the legal title holder. This first occurred in 2019 close to the time of death and I included this in the management letter calling for the legal title to be rectified. I am now doing the 2020 audit and it has still not been rectified. I need to consider if this is a breach of Reg 4.09A or other. Please let me have your thoughts.
Many thanks.
Hi Ron
Regulation 4.09A of SIS requires that:
"A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively:
(a) that are held by the trustee personally; or
(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund."
My view is that if in name of one trustee in trust for the Fund it is technically not a breach of Regulation 4.09A as the assets are kept separate from any personal assets (as it is in the name of the Fund).
The ATO gives guidance on Regulation 4.09A of SIS & states at:
https://www.ato.gov.au/super/self-managed-super-funds/smsf-auditors/auditing-an-smsf/compliance-audit/
"The auditor should obtain evidence that the fund’s money and assets are held separately from money and assets held personally by the trustees or a standard employer-sponsor by:
sighting asset ownership documents, including bank statements, to verify SMSF assets are held in the name of trustees on behalf of the fund (for example, R & J Smith as trustees for the Smith SMSF or R Smith Pty Ltd as trustee for the Smith SMSF) and not in the name of the trustees alone
where State law prevents ownership in the SMSF’s name, checking for alternative documentation that protects the fund’s assets (for example, a valid declaration of trust)
reviewing transactions on bank statements to ensure fund money is not mixed with money belonging to related parties of the SMSF.
Where there has been a change in trustees, the auditor should obtain evidence that ownership documents reflect the change."
The ATO does expect that the investments should be in both trustees name in trust for the Fund as they note above as "R & J Smith as trustees for the Smith SMSF".
My view is to not to qualify re Regulation 4.09A but to again raise it as a management letter issue. If you are not satisfied with the response from the trustees you could consider raising it in an audit contravention report (ACR) where you can provide information to the ATO (under professional judgement).
It would be great to get other members view on this issue as it is a common issue faced by auditors.
Thanks
SMSF AAA