Approaching the end of the financial year – A reminder to SMSF trustees about audit requirements

AASB Ref

AASB Questions to be addressed in examining SMSF Deed

Cleardocs Deed Reference – Part number (letter) and clause heading

(We cannot provide clause numbers as they vary between deeds depending on, for example, whether the trustee is a company.)

Maddocks Comments

A

Establishment and Execution

A.1

Is the date of establishment of the SMSF recorded?

Schedule 1

Part A

Establishment of the Fund

Yes.

A.2

Has the trust deed been:

• Properly executed?
• Signed by all the members who are individual trustees?
• Witnessed?
• Dated?
• Stamped (if required)?

-

You will need to review the relevant deed on a case by case basis.

A.3

Do the rules incorporate SISA, SISR and applicable taxation rules?

Part A

Establishment of the Fund

The Deed establishes the fund under the SISA.

Part A

Deed Subject to Superannuation Law

The Deed requires the fund to be operated so that it qualifies for concessional treatment under the ITAA36 and ITAA97.

A.4

Does the deed outline the core and ancillary purposes of the SMSF?

Part A

Purpose of the Fund

This clause states the SMSF's sole or primary purpose.

A.5

Does the deed require an irrevocable election to be made to be a regulated superannuation fund or a fund subject to the SISA and SISR?

Part A

Establishment of the Fund

The Deed:

• states that the SMSF is an indefinitely continuing SMSF; and
• requires the fund to be operated so that it qualifies for concessional tax treatment under the ITAA36 and ITAA97.

A.6

Does the deed have a clause which deems the appropriate legislation into or out of the deed to allow the SMSF to remain complying?

Part A

Deed Subject to Superannuation Law

If an obligation that superannuation law imposes on the trustees of the SMSF is not expressed in the Deed, then the Deed regards that obligation as incorporated into it.

B

Amendments to the Deed

B.1

Does the deed allow amendments?

Part N

Variation

The trustee may vary the Deed prospectively or retrospectively with the written consent of the employer-sponsor (if there is one). The variation may be by oral declaration, written resolution or deed.

Part N

Limits on Power to Vary

The Deed places limitations on the trustee's power to vary the Deed.

B.2

Has the trust deed been amended since the last audit?

If so:

• Has the deed amendment been properly executed?
• Is confirmation of the deed's compliance with SISA and SISR required from the solicitor or other party involved in the amendment?
• Is the amendment signed-off by the current trustees?
• Could the amendments impact the audit?

-

You will need to review the fund's register and all relevant documents on a case by case basis.

C

Trustee and Membership

C.1

Does the trust specify who may be a trustee?

Either:

• two or more individual trustees; or
• a trustee company.

Part A

Trustee(s) of the Fund

Schedule 1

The initial trustee is named in the Deed.

C.2

Does the deed specifically identify the trustee as either an individual or a corporate entity?

Part A

Trustee(s) of the Fund
Schedule 1

The Deed identifies the name and address (and ACN if applicable) of the trustee.

C.3

Are all individual trustees or directors of the trustee company required to be members?

Part B

Date of Additional Member's Commencement as Trustee

The Deed provides that:

• if the individual members are the trustees, then an additional member becomes trustee of the fund on the date his or her membership commences; and
• if a company is the trustee, then an additional member becomes director of the trustee of the fund on the date his or her membership commences, provided that the trustee has done everything to appoint the additional member as a director of the trustee.

Does the deed permit members to be:

• A non-working spouse?
• A retired person?
• A child?

Part D

Member to keep Trustee Informed

Part B

Minor as Member

No relevant restrictions on membership.

C.5

Does the deed limit the maximum number of members to 4 members?

Part B

Conditions must be met

Trustee must not accept a person as an additional member if this would mean that the total number of members would be more than 4.

C.6

Is membership open to anyone else?

Part B

Trustee may appoint Additional Members

Trustee may appoint additional members.

C.7

Do the members of the SMSF meet the definitions?

• No member of the SMSF is an employee of another member, unless related.
• No trustee receives remuneration for their services to the SMSF.

Part B

Conditions must be met

Trustee must not accept additional members if the person is in an employment relationship with a member, unless they are related.

Part M

Trustee may not Charge Fees

Trustee must not charge any fees in relation to acting as trustee under the Deed or performing any services in respect of the fund.

C.8

Does the trust deed contain the Trustee Covenants?

-

No, and the Deed is not required to as section 52 of the SISA provides that if the governing rules of an SMSF do not contain the trustee covenants set out in section 52(2), then they will be deemed to contain those covenants.

D

Audit and Financial Reports

D.1

Does the trust deed require the appointment of an approved auditor?

Part M

Audit

Auditor must be qualified in accordance with superannuation law.

D.2

Does the trust deed require the trustees to prepare a financial report annually and for it to be audited?

Part M

Audit

Trustee must arrange for annual audit.

D.3

Does the trust deed require the trustees to keep the minutes and records of trustee decisions for at least 10 years and accounting records and signed financial reports for at least 5 years?

Part M

Trustee to keep Records, Accounts, Books etc.

Trustee must ensure that all records, books, accounts, minutes, reports and other documents are maintained and kept safe in accordance with superannuation law for the period required by that law:

• SISA section 35B(4): accounting records to be kept for 5 years; and
• SISA section 103: minutes of all meetings and elections to be retained for 10 years.

Contributions

E.1

Does the deed contain a general power to accept all contributions permitted by superannuation law?

Part D

Member Contributions

Employer Contributions

Other Contributions

Contributions etc Not Accepted

Under these provisions, the trustee may accept all contributions permitted by superannuation law.

Does the deed allow:

• Concessional contributions, including:
  • Employer contributions, including contributions made pursuant to a salary sacrifice agreement?
  • Member contributions for which a tax deduction is claimed?

Part D

Member Contributions

With member's and the participating employer's consent, contributions can be paid by deduction from wages or salary

• Non-concessional contributions, including:
  • Member contributions for which no tax deduction is claimed?
  • Eligible spouse contributions?

Part D

Other Contributions

With the consent of the trustee and the member, any other person, including a spouse of that member, may make contributions to the fund in respect of that member.

• Contributions in respect of minors?

-

No relevant restrictions in Deed. See "Other contributions" clause which enables all other forms of allowable contributions.

• Rollovers and transfers in?

Part L

Trustees' Power to Receive Transfer

The trustee may take over, or acquire by transfer, from an 'approved benefit arrangement' (which includes another super fund):

• any part of the assets of that arrangement that represents the interest of a participant in that arrangement;
• if that participant has become, or is to become, a member or beneficiary of the fund.

Government co-contributions?

Part D

Other Contributions

With the consent of the trustee and the member, any other person, including any State, Territory or Federal government, may make contributions to the fund in respect of that member.

Contribution splitting to a spouse

Part C

Contributions-Split Requests"

Member may ask the trustee that contributions made to the fund in respect of that member in the previous financial year be:

• transferred to the member's spouse; or
• transferred to the trustee of an approved benefit arrangement of which that member's spouse has joined or is eligible to join.

Contributions by members who are under 65 and not working?

Part D

Member to keep Trustee Informed

No, but member must tell the trustee as soon as practicable if they are aged 65 or older and cease gainful employment.

Contributions by members who are working part-time and are over 65 and under 75?

-

No relevant restrictions in Deed.

Mandated contributions to be accepted at any age?

-

No relevant restrictions in Deed.

Contribution splitting arrangements pursuant to family law matters?

Part K

Payment Splits

Trustee may vary benefit and make payment to non-member spouse or a transfer-in in respect of the non-member spouse, pursuant to a splitting agreement or court order under Part VIIIB of the FLA.

E.2

Does the deed allow for in-specie contributions of assets to be made by members of related parties?

Part D

Other Contributions

How Contributions to be Made

With the consent of the trustee and the member, any other person (including a spouse of that member or another member) may make contributions to the fund in respect of that member.

A contribution to the fund may be made by the transfer of assets in accordance with superannuation law.

E.3

Does the deed permit spouse accounts and may employers make contributions to spouse accounts?

Part C

Contributions Split Requests

Member may ask the trustee that contributions to the fund in respect of that member be allotted to the accumulation account of that member's spouse.

Accommodated by provision for contribution splitting.

E.4

Does the deed provide a basis for rejecting excess contributions?

Part D

Other Contributions not Accepted

Trustee may refuse to accept excess contributions.

E.5

May excess contributions tax levied on the member be paid by the SMSF, irrespective of preservations rules and conditions of release?

Part D

Permissible Actions if Excess Contributions Accepted

Trustee may:

• release funds to the member where the trustee has received a member release authority; or
• release funds to the Commissioner of Taxation where the trustee has received an ATO release authority.

F

Benefit Payments

F.1

Does the SMSF require compulsory cashing of the members balance at a specific age?

Part F

Vesting and Compulsory Payment

No. Trustee must cash, or commence to cash, a member's benefit entitlement as soon as practicable after the member dies or the entitlement has vested.

Part F

When Payments of Preserved Payment Benefits Allowed

Trustee may pay a member when the member reaches 65.

F.2

Does the SMSF require a lump sum benefit to be paid in lieu of a pension?

Part G

Trustee's Right to Commute Pensions Generally

On written request by a pensioner, trustee may commute any part of a pension to a lump sum then pay it to the relevant person or their estate.

G

Pensions

G.1

Does the deed expressly allow for payment of pensions by the SMSF, including:

• Account based pensions?

Part G

Trustee's power to Pay Pension

Trustee Must establish Pension Account

Trustee may pay any allowable pension including an accounts based pension. The pension may be of any type permitted by superannuation law.

• Transition to retirement income stream?

Part G

Trustee's Power to Pay Pension

The relevant member or beneficiary may choose the type of pension that is to be paid, including a transition to retirement pension.

• Allocated pensions?

Part G

Pensions

No. No longer permitted under super law.

• Term allocated or market linked or growth pensions?

Part G

Pensions

No. No longer permitted under super law.

• Complying lifetime or fixed term pensions?

Part G

Pensions

No. No longer permitted under super law.

• Non-complying lifetime or fixed term pensions?

Part G

Pensions

No. No longer permitted under super law.

G.2

Does the deed allow for commutation of a pension?

Part G

Trustee's Right to Commute Pensions Generally

On written request by a pensioner, or in accordance with superannuation law or the Deed, the trustee may commute any part of a pension to a lump sum, and pay it to the relevant person or his or her estate.

G.3

Does the deed allow for the segregation of assets to meet pension requirements?

Part G

Segregation of Assets and Valuation

Trustee may segregate from other assets those assets which are to fund a pension under the Deed.

G.4

Does the deed make reference to nominated beneficiaries?

Part H

Death benefit payments

The Deed provides:

• for binding and non-binding nominations; and
• for death benefit agreements which form part of the Deed and bind the trustee concerning payment of a death benefit.

H

Reserves (If applicable)

H.1

Does the deed provide rules in relation to the establishment, maintenance and operation of SMSF Reserves?

Part C

Trustee may establish or maintain other accounts or reserves

Trustee may establish or maintain any other account for reserve of the fund that the trustee thinks necessary or desirable or that is required or permitted by super law.

H.2

Does the deed require different or parallel investment strategies for each reserve account?

Part C

Trustee may Establish or Maintain Other Accounts or Reserves

No. However the trustee may adopt such practices as the trustee in its discretion thinks fit.

I

Investments

I.1

Does the deed provide powers to the trustees to invest the assets of the SMSF?

Part E

Authorised Investments

Trustee must invest any assets of the fund that are not required for payment of benefits or other amounts under the Deed.

I.2

Does the deed specify specific assets/asset classes that the SMSF may invest in?

Part E

Authorised Investments

This clause lists the types of investment in which the assets may be invested.

I.3

Does the deed prevent investments in, or loans to, related parties?

Part E

Forbidden Investments

Trustee must not make an investment in the form of a loan or other financial assistance to a member or a relative of a member.

I.4

Does the deed require an investment strategy to be formulated and given effect?

Part E

Strategy

Trustee must formulate one or more investment strategies for the fund.

J

Borrowings

J.1

Does the deed prohibit borrowings?

Part L

Limit on Borrowing

When Borrowing is Allowed (Including "Instalment Warrant Arrangements")

Trustee must not (except as provided for in the Deed and under superannuation law) borrow money or maintain an existing borrowing of money.

Trustee may borrow or maintain a borrowing of money in three circumstances:

• to enable trustee to pay a surcharge or advance instalment;
• to enable the trustee to settle a transaction to acquire any one or more of the securities listed in section 67(3)(a) of the SIS act; and
• under an instalment warrant arrangement.

J.2

Does the deed permit borrowing in specific circumstances, including:

• Temporary borrowings which are required for the payment of member benefits, short term settlement of securities or superannuation contributions surcharges (no longer levied)?

Part L

When Borrowing is Allowed (Including "Instalment Warrant Arrangements")

Trustee may borrow or maintain a borrowing of money:

• to enable trustee to pay a surcharge or advance instalment; and
• to enable the trustee to settle a transaction to acquire any one or more of the securities listed in section 67(3)(a) of the SIS act.

• Borrowings for instalment warrant arrangements?

Part L

When Borrowing is Allowed (Including "Instalment Warrant Arrangements")

Trustee may borrow or maintain borrowing of money under an instalment warrant arrangement.

K

Winding-Up

K.1

Does the deed provide for the winding-up of the SMSF?

Part N

Trustee may elect to Wind up Fund

Trustee may wind up the fund in the following cases:

• trustee decides to wind up the fund;
• employer-sponsor gives the trustee written notice that it has decided to wind up the fund; and
• there are no longer any members of the fund.