Conducting a search on the Australian Securities and Investments Commission (ASIC) register should be the first port of call for auditors to determine whether an SMSF is dealing with related parties, according to a specialist practitioner.
“If it’s a company [in question], I’ll do ASIC searches to check who the shareholders are, particularly if it’s proprietary limited and it’s not widely held,” BDO superannuation partner Shirley Schaefer told attendees at The Tax Institute’s recent Super Intensive.
“[In one case] I had done nine ASIC searches to work out who the individuals behind a group of entities were and they were all related family members. So it is important to understand how deep you have to go to determine whether somebody is a related party.”
To illustrate her point, Schaefer pointed to a case she was asked to review of an SMSF that held $18 million in fishing licences, representing around 80 per cent of the fund’s assets.
“We had four members in this fund and we needed to look at all of the family members that attach to all of those people,” she said.
“The fishing licences were leased to a separate business, [however], when you performed an ASIC search of the company that the licences were leased to, it was determined that the separate business was in fact a related party.
“Nobody bothered to check who ran that separate business. They relied on the assertions that it was a separate business without checking the facts around who is a related party [and] all of sudden we had an $18 million problem in this SMSF that we had to solve.
“The plan they came up with was to dispose of the fishing licences to either the members personally or to related trusts, [but] the individuals or the trusts they are going to sell to have to come up with $18 million to put into the super fund.”
As such, she advised completing a register check as soon as possible to avoid in-house asset issues, which are often problematic to rectify.
“In-house assets are one of the most complicated and difficult aspects of SMSF compliance to deal with [because] when things go wrong with in-house assets, they can go horribly wrong,” she said.