A superannuation lawyer has recommended SMSF auditors use key materials available, such as Guidance Statement (GS) 009, to assist them in making their processes regarding non-arm’s-length transactions as robust as possible in the event of an adverse event and an ATO review of their files.
“I think in the hustle and bustle of everyday practice we forget to look at the key materials. And I know I’ve had auditors roll their eyes at me when I say ‘what about paragraph this of GS 009’ [and they respond with] ‘we don’t look at that in practice’,” DBA Lawyers special counsel Bryce Figot told attendees of the Auditors Institute Auditors Day Melbourne recently.
“But if you want a really good shield to protect you, if your audit file can say: ‘I have considered paragraph this of GS 009 and [given] what that [states], here’s what I’ve done,’ that’s not going to guarantee success, but I like you chances [of surviving ATO scrutiny].”
He suggested paragraph 356 of the Auditing and Assurance Standards Board GS as being a good starting point as it lists the indicators of non-arm’s-length transactions.
These include investments in a related party; investments managed by a related party; where details of parties to a contract indicate related parties; uncommercial or disadvantageous terms of a lease or loan; acquisition or disposal of SMSF assets that do not appear to be at commercial rates; the lack of formal contracts established for loan, lease or other arrangement; assets, such as rental properties, where little or no income or income well below commercial rates is derived from the transaction; and investments that are inconsistent with the investment strategy or entered into without a sound rationale.
“If you get audited and the ATO takes issue [with your processes], the best thing to look at is what [GS 009 says]. If it supports you and the ATO goes off on some tangential [path], you’re in a strong position,” Figot noted.
