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Anand Gupta

Mar 10, 2022

Multiple Roles by Professional Lawyer

in SMSF Technical Forum

Dear All,

I have a few funds from one accountant to audit. Here is the observation so far, names are for illustration purposes only.

1- SMSF Trustees have paid a referral Fee to ABC Pty Ltd, the invoice doesn't say much more than this

2- Then a Lawyer (ASIC shows no relation to ABC Pty Ltd))

1- Sets up the SMSF fund - invoice issued as No Advice Given, One-off engagement

2- Creates a loan agreement between SMSF and another newly created Investment Trust by him

3- acts as trustee of the Investment Trust (Money Loaned to Investment Trust)

3- The Interest and other terms don't appear to be arms-length and interest and repayments are not made properly

I need some help and guidance on this, appreciate any help in this regards

2 answers0 replies

Comments (2)

Anand Gupta

Mar 12, 2022

Thanks, SMSF AAA Team, I have requested the trustee to explain the referral fee invoice, along few other queries related to the investments. Thanks, Anand

THE AUDITORS INSTITUTE

Mar 10, 2022

Hi Anand

I assume the referral fee to ABC is for advice re the set up of the Fund or in relation to investments. It may be an "establishment" type fee that would be treated as a capital expense.

I would request an explanation from the trustee and or ABC as to what it actually relates to.

Re the lawyer the fee for Fund establishment again would be treated as a capital expense.

My concern re the Investment Trust is that this may be a scheme for possibly another trust related to the lawyer to lend money back to the members (or a related party) of the Fund and therefore may be a scheme to get around the in-house asset rules.

If the interest and other terms do not appear to be on an arm's length basis and interest / loan repayments are not made properly then there is concern that the Fund's trustees have breached section 109 of SIS that requires:

"All investment transactions must be made and maintained at arms-length – that is, purchase, sale price and income from an asset reflects a true market value and or rate of return".

In relation to the Trust's loans you need to consider if there is any security, and the terms of the loan agreement.

My view is you need more information in relation to the loan to be able to complete your audit & the section / regulations you need to consider / focus on are:

1) Section 62 - sole purpose test

2) Section 65 - loan / financial assistance to members

3) Section 82 - 85 - inhouse asset rules

4) Section 109 - investments to be made on an arm's length basis

5) Reg 4.09A - Trustees must formulate, regularly review and give effect to an investment strategy

You may also need to consider issuing a financial qualification in relation to the investment in the Trust.

Thanks

SMSF AAA