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I am auditing 2021, 2022 and 2023. Husband, a practicing accountant, and wife make contribution of $25,000 each, for all the years. Both members are over 65 years of age and are both on acculumulation mood. Upon the contributions being made, both members would withdraw 85% of the funds as lump sum. At year end, the funds bank account has the 15% tax retained plus $100. Obviously this strategy is just to take benefit of the concessional tax rate. The members are entitled to take their respective lump sum. I cannot see any contraventions unless it could be argued that sole purpose has been breached. Even with possible breach, it is debatable that the reporting threshold has not been exceeded and therefoe no ACR is required. Provided the investment strategy (there is indeed no investment at all) is worded appropriately, it is not even an issue needed to be mentioned in the management letter.
Your opinion please.
Hello Stephen
Thanks for an interesting question. Thankfully, as fund auditors we are not required to provide opinions as to whether there is a Part IVA risk associated with a contribution and redraw strategy.
For the situation at hand, there does appear to be a breach of the SIS Act because as at 30 June 2021 there are loans to members of the fund - representing the fund's outstanding tax debt to the ATO.
Whilst appreciating that these loans have since been paid back (so rectification has already occurred), this does not remove the fund auditor's obligation to lodge an ACR because the fund has failed Test 6 (Where the value of all contraventions is more the 5% of the value of the fund's total assets) and/or Test 7 (If the value of all contraventions of a section or regulation listed in tablesĀ 1A and 1B is more than $30,000).
The apparent breaches would be in relation to section 65 (financial assistance to a fund member), and sections 82 and 84 (in relation to in-house assets that are more than 5% of the fund's total assets).
The Auditors Institute