A superannuation lawyer has warned auditors of an issue they may face in the coming years regarding asset valuations when taking on new SMSF clients who have a pension interest that commenced before 1 July 2017.
According to DBA Lawyers special counsel Bryce Figot, the problem auditors will potentially face when onboarding a new client involves the capital gains tax (CGT) cost base reset implemented on 1 July 2017 due to the introduction of the transfer balance cap.
“In the [2017 financial year] there were two types of CGT relief that existed – segregated CGT relief and proportionate [relief] and both of them involved pretending that you sold [the asset or assets in question] and then bought back the assets. The segregated approach was easy and the proportionate approach was a bit more tricky,” Figot told practitioners at The Tax Institute National Superannuation Conference held in Sydney last week.
“But it means if you inherit a new client, particularly if they might have been in pension mode in 2017, the cost base [of assets supporting their pension] might have had something weird and whacky [happen] in the guts of the [audit] file in 2017.”
He pointed out a situation like this could cause problems for auditors, particularly if some of the records for the client were not well maintained by individuals who had been servicing the SMSF at the time, such as a tax agent.
Further, should the record-keeping for a member be questionable, the new auditor will always ask the previous fund auditor for the client’s files and this is where a potential compliance issue may soon present itself, he noted.
“How long should auditors retain their files for? Seven years, which means odds are we’re probably right at the cusp [of that timeframe],” he explained.
“So if you have clients right now that you have acquired post 2017, find out, through FOI (freedom of information) [provisions] or the ATO portal, [from their statutory annual returns] who the auditor was for the [2017 financial year].
“The trustee can get the file from the auditor and the auditor [would have had to have kept] it for seven years, but that seven-year period is almost up.
“So if you have acquired a client and you didn’t get good records from the [previous] accountant, ask the auditor for those records [now because] the file that the auditor hands over should be able to show you what happened with [any] CGT relief.”
