The SMSF Association has acknowledged how a recent Administrative Appeals Tribunal (AAT) decision regarding the non-arm’s-length income rules has served as an illustration of the attention to detail accountants and auditors need to demonstrate when dealing with related-party transactions.
The AAT case in question found while interaction between the parties involved in the arrangement was not of a non-arm’s-length nature, the benefits the SMSF enjoyed were not over and above those that could be expected from a commercial transaction.
“The evidence presented was pivotal in overturning the ATO’s decision and serves as a resounding reminder that SMSF advisers, accountants and auditors need to be on their game when structuring and auditing related-party arrangements – every facet of the arrangement needs to be on commercial arm’s-length terms and be commercially justified,” SMSF Association chief executive Peter Burgess noted.
“In today’s regulatory environment, it is important to recognise that SMSF auditors are required to strike a balance between upholding Australian Auditing Standards, fulfilling their obligations to SMSF trustees, meeting ATO and ASIC (Australian Securities and Investments Association) expectations, whilst effectively managing their relationships with accountants.”
The case has set the scene for the industry body’s SMSF Audit Day to be hosted online on 20 September.
To this end, the interaction between the SMSF accountant and auditor will be one of the subjects to be covered on the day, along with an examination of how technology can be used to improve the annual audit process.
“We know that SMSF professionals are continually confronted with complex arrangements, particularly when dealing with related parties and that the incidence of related-party disputes is on the rise,” Burgess said.
“The focus on this issue, along with the SMSF Audit Day’s overarching theme of diligent evidence, will assist SMSF auditors to stay abreast of current and emerging issues to help mitigate the risk of litigation.”
