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Hi all,
I am auditing a fund for the first time in 2021 (two individual trustees, single member) which holds four properties (3 residential, 1 commercial). The fund assets are all in Victoria, the fund was audited for a number of years by a different auditor prior to my engagement.
I ordered a title search for each and all show only the single trustee/member as sole owner. I requested contracts of sale for each but have not received. After a lengthy wait I was instead sent an acknowledgement of trust declaring that each property is held by the two individual trustees ATF SMSF which is contradictory to the titles themselves.
Should I request the contracts of sale again, qualify and lodge an ACR for s35C(2) & Reg 4.09A or request different information/paperwork?
A second issue I am experiencing is that I received a trust deed for this fund which is missing two pages including the schedule page. Is this an issue that requires qualification/ACR or will discussing it in the management letter and requesting a deed amendment suffice? The deed itself has not been updated since 1999 per discussions with the tax agent.
Thanks in advance for any thoughts on the matters
Hi Michael
Re the property title issue 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). I agree that the acknowledgement of trust provided is not correct so a new version should be requested where it states that the property is in 1 trustees name in trust for 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 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). I agree that the title should be in both trustees names.
It would be great to get other members view on this issue as it is a common issue faced by auditors.
In relation to the trust deed issue my view is to not raise it as a qualification or in the ACR but raise it in the management letter and request the full deed be provided or a deed of variation be obtained.
Thanks
SMSF AAA