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Kylie Wee

Oct 26, 2023

SMSF lending to a private company

in SMSF Technical Forum

Hi All,

I am current auditing a Super Fund, which has lend money to a private company in 2020 year. The oustanding loan to the private company amounted to $50,000 as of 30 June 2023 and formed 8.7% of the Fund's total assets. Per review to the signed loan agreement between the company and the Fund, I noted that the loan should have been fully repaid on November 2020 as per the agreement. I further noted that if the borrowing fails to comply with this obligation, then interest, fees and costs will continue to accrue and capitalised after the Repayment Date. Since the loan is still outstanding as of 30 June 2023, I queried if the Late payment clause has been applied to loan and any deed of addeddum to the contract has been prepared to reflect the updated loan repayment date. Also, I queried if the oustanding loan amount, being $50,000 is recoverable by the Super Fund from the borrowing company and whether the annual repayment is ongoing.

The accountant of the Fund has replied to my queries. Please find below the reply:

'Per the Loan Repayments Notes which was uploaded as part of the 2023FY Documents, it was confirmed by the trustee member that there was no addendum. There was no additional interest and fees capitalised and confirmed by the trustee member that the likelihood to recover the remaining capital is uncertain at this stage'

Per my understanding it might be a breach of S. 109 of the SISA .Could you please advise?

1 comment

Comments (1)

THE AUDITORS INSTITUTE

Oct 26, 2023

Hi Kylie

I assume the company that was lent to is not a related party.

Yes section 109 of SIS needs to be considered re whether it was an arm's length transaction. It is noted that the loan may not be collectable. I would review how the trustees came to this conclusion and what action has been taken by them to enforce the debt and the terms of the debt. I would request more information from the trustees re why they made the investment and what they have done to collect the loan. This will determine if there has been a breach of section 109.

As auditor you would also want to check compliance with:

Section 62 - sole purpose test
Regulation 4.09 - investment strategy allows for the investment

Thanks

The Auditors Insitute