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The Fund has lent $100,000 to a member's relative (mum) in October 2019, a breach of Section 65. There was no loan agreement. The fund's total asset was $139,900. The loan was fully repaid by 30 June 2020 with interest of $4,409. The interest was a journal entry only with no actual money received in the bank. There was no prior advice of contravention. The percentage value of contravention is greater than 5% and the total value of contravention is greater than $30,000. Would you qualify the compliance audit and report a contravention given that the loan was fully repaid within the financial year?
Your input is much appreciated.
Hi WL
Section 65 of SIS states that a Fund must not lend money (or give financial assistance) to member or a relative of a member. The loan to the member's mum in the 2019/20 year is a breach of Section 65 & is material so you would need to issue a Part B compliance qualification. You would qualify even though the loan has been repaid. Yes as the breach was greater than 5% & $30,000 you would need to report the breach via the Audit Contravention Report (again even though it has been repaid).
As a positive in the ACR you can advise that the breach has been rectified.
How was the interest only a journal entry and no interest received? Is it a debtor as at 30 June 2020?
I would also consider qualifying & lodging an ACR in relation to:
1) Section 62 - breach of the sole purpose test.
2) Section 109 - breach of investment not made on an arm's length basis (due to no loan agreement & no interest received).
Thanks
SMSF AAA