SMSF auditors looking to document investments in unlisted entities or unusual assets should be extremely thorough and careful as these arrangements are most likely to be targeted by the ATO for review, an SMSF legal expert has noted.
DBA Lawyers special counsel Bryce Figot said when dealing with “tricky” investments, auditors should exercise a high degree of professional discretion and “hope for the best plan for the worst”.
“The ATO are very good at getting with their metrics and sometimes I’m baffled as to how they are able to identify issues from the data they have gotten from their statutory returns,” Figot told attendees of a technical webinar held last Friday.
“The ATO is good at reviewing your trickiest file, so think about your worst work on your worst day and assume that’s what the ATO is going to pick.”
He noted auditors had been provided with extensive information from the ATO, which could stave off questions about their actions.
“The best protection if you are working on something that is tricky is to review Guidance Statement (GS) 009 and the ATO’s website guidance and closely, expressly and in detail document that and why you’re marrying up what you have to what that guidance says,” he suggested.
“In particular when it comes to tricky investments refer to the ATO online guidance under Quick Code (QC) 81464.”
Figot added while this page stated SMSF trustees were expected to consider a range of factors when valuing a share in a private company or a unit in an unlisted unit trust, and evidence as to how that value was reached, signed statements from directors of those structures may not be sufficient.
“I’ve seen instances where there have been signed financial statements from the directors or the trustees of the unit trust or company that the SMSF is investing in and been told ‘the director or the trustee is the person who knows the most about the investment so their determination is going to have the most value’,” he revealed.
“Yes and no. The director or trustee also has a vested interest to overstate it or potentially even to understate it.
“So just because the director or the person running the thing you’re investing in has said ‘this is the value’, it’s a factor to consider at best. It’s hardly definitive. You want something that is objective and supportable.”
