Great care must be taken regarding SMSF investments in an ungeared unit trust as defined by Superannuation Industry (Supervision) (SIS) regulation 13.22C as even the simplest and unintended situations, such as an overdrawn bank account due to fees charged, can result in a contravention of the rules, a specialist lawyer has said.
“[If the bank account of the unit trust is overdrawn], that itself could be a problem. That [circumstance] is seen as effectively a borrowing. Therefore that alone will contravene one of the provisions [of SIS regulation 13.22C] and [will result in] a failure under [SIS regulation] 13.22D and [the SMSF’s investment in the unit trust then] becomes an in-house asset,” DBA Lawyers director Daniel Butler warned during a panel session at the Chartered Accountants Australia and New Zealand National SMSF and Financial Advice Conference 2022 held in Sydney last week.
Butler pointed out this in turn could cause the value of in-house assets the SMSF holds to exceed 5 per cent of the dollar amount of the fund’s total assets, which in turn will mean the trustees will have to action a plan to reduce the value of in-house assets to ensure they are below that threshold.
“I see that happening quite a bit. It could be unintended that it may happen. I actually advise people to [keep a balance in the bank account that will prevent it from going] into overdraft [because] banks will allow that to happen,” he noted.
Fellow panellist BDO Australia financial services, superannuation, audit and assurance partner Matina Moffitt revealed SMSF auditors are already modifying their procedures to ensure situations like this do not arise.
“The request [to sight the bank statements of unit trusts] is going out now and I would be very surprised if [to] the people in this room an auditor hasn’t asked for additional information apart from the financial statements of a unit trust especially if they [involve related parties],” Moffitt said.
“We definitely are asking for more information and I think sometimes it’s educating trustees and accountants that this information is now going to be requested.”
One factor prompting greater auditor diligence in this area is the increased focus from the ATO on related-party transactions, she said.
