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I was doing auidt of SMSF where commercial property was owned by superfund and leased to related party (members busniness). SMSF is in 100% pension phase. Member of the fund directly withdrew part of the rental payments owed to superfund by his business as pension payments. Trustees recorded as journal for rental income and pension payments in the superfund. As per pension standards guideline trustees must pay a minimum amount at least once a year. I think this is breach of Reg 6.17. Do i need to report any other Reg or Sec for this breach?
Many thanks
Hi Sandeep
The Fund is owed rent and the member is paid a pension. Instead of the Fund paying a pension the rent is paid direct to the member in lieu of it being paid to the Fund as rent.
Arguably this is not a breach of SIS due to ATO ID 2015/23.
The ID states:
"It is well-established at common law that a 'payment' of money can be effected by way of agreed set-off between two parties, where those parties each have a presently existing liability or legal obligation to the other for a certain monetary amount immediately payable, and they agree to set off the liabilities against each other. In such circumstances, journal entries in the books of account of the parties to the transaction may record the payment of money from one party to the other by the agreed set-off. There does not have to be an actual exchange of monies between the parties in such circumstances. This general law principle of payment by 'set-off' has its foundation in the case of Re Harmony and Montague Tin & Copper Mining (1873) LR 8 Ch App 407 (Spargo's case)."
That is if there is a liability to pay rent and a liability to pay a pension then there can be an "agreed set-off" between the 2 parties. This is seen sometimes where a private unit trust does not pay a distribution to a SMSF but it is paid to a member and it is treated as distribution received and pension paid in the Fund's accounts.
Thanks
The Auditors Institute