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Stephen Ryan

May 05, 2022

in SMSF Technical Forum

Auditing an SMSF and the trustee(s) are advising that the SMSF is share trading. Researching the ATO and referencing S62 of SISA and NALI.

The ATO website states:

Self-managed super funds (SMSFs) are not prohibited from carrying on a business, but the business must be:

allowed under the trust deed
operated for the sole purpose of providing retirement benefits for fund members.

Further :

Cases that attract our attention include those where:

the trustee employs a family member (we look at things such as, the stated rationale for employing the family member and the salary or wages paid)
the 'business' is an activity commonly carried out as a hobby or pastime
the business carried on by the fund has links to associated trading entities
there are indications the fund's business assets are available for the private use and benefit of the trustee or related parties.

Assuming the SMSF meets the deed and investment strategy requirements and does not fall into the "cases that attract our attention" categories, with the caveat of who is to say that the ATO in time considers that the SMSF is not in the business of share trading should I be qualifying my audit report at Part B?

3 answers0 replies

Comments (3)

Stephen Ryan

May 31, 2023

If it's accepted that the SMSF is a share trader, does it follow that an election for closing stock (being the shares held on 30 June) can each (holding) be valued at either market value or cost, depending on best tax outcome for the SMSF?

THE AUDITORS INSTITUTE

Jun 01, 2023

Replying to

Hi Stephen

From a financial statements perspective SIS Reg 8.02B requires:

"When preparing accounts and statements required by subsection 35B(1) of SISA, an asset must be valued at its market value".

That is the financial statements must value the shares at their market value.

The tax calculation could be based on market value or cost if the Fund is a "share trader".

In my view it is extremely rare for a SMSF to be deemed a share trader. Preferably the Fund would request a private ruling for it to deemed to be a share trader and for it to be taxed as a business. I have only seen a SMSF tax return done as a share trader once and that was about 20 years ago.

If other forum members have a view please let the forum know.

Thanks

SMSF AAA

THE AUDITORS INSTITUTE

May 10, 2022

Hi Stephen

Arguably if no breach of section 62 of SIS in that the Fund is being maintained solely for the provision of benefits to members when they retire and the share trading "business" complies with Fund's deed & investment strategy then there is no breach of SIS and there would be no requirement to issue a qualified Part B audit report.

It would be appropriate to express any concerns you have as auditor re the share trading "business" via the annual trustee / management letter.

I also note that if you as auditor are of the view that the share trading "business" should be reported to the ATO this could be considered by using your professional judgement in the auditor contravention report (ACR).

The ATO notes on their website in relation to the ACR:

"We also encourage you to report contraventions and other information that you think will help us perform our function as the regulator of SMSFs at Section G of the form. To decide if you should report contraventions and other important facts, even if they do not meet any of the tests, you should apply both of the following:

the auditing and assurance standards
your professional judgment."