SMSF auditors will still need to flag the compliance status of offset accounts within a limited recourse borrowing arrangement (LRBA) despite a recent update from the ATO on the matter, according to an audit specialist.
ASF Audits head of technical Shelley Banton said the regulator’s statement released in May did not add much more clarity for SMSF trustees or auditors.
“What the ATO has come out and said is that where an offset is offered by an authorised deposit-taking institution (ADI), such as a bank, it complies with section 67A and B of the Superannuation Industry (Supervision) Act, but when you’ve got a non-ADI, such as a finance company, offering an LRBA with an offset, the ATO jury is out,” Banton said yesterday in an online presentation.
“So what we have now is no better or worse than how the industry was previously looking at these.”
Banton noted SMSF auditors were already giving a tick of approval to ADI offset accounts and using a non-compliance notice or a warning in the management letter about non-ADI offset accounts, but since 2018 the latter were the only accounts still available to SMSF borrowers.
“The ATO contribution to this discussion is that the non-ADI offset accounts aren’t bank deposits,” she said.
“We already know that, but we don’t know whether the offset is an asset of the fund and if it’s not, is it a redraw facility which then sets up a new LRBA each time the trustee draws down on it.
“The solution at this point is to put the onus back on those non-ADIs that are offering this structure and the SMSF Association and the ATO recommend they obtain a product ruling or a legal opinion.
“We’re still waiting to hear about those and I think that we will continue to wait.
“So audits will still need to address this through the management letter and if the ATO updates their view with a clearer decision, then we will obviously be able to update our opinion.”
