SMSF auditors and accountants should ask trustees if there is adequate liquidity within their fund to make pension payments, particularly where it holds property investments, as it may have been overlooked or ignored, a sector specialist has pointed out.
Strategy Hub co-founder Tracey Besters said it was a common strategy for trustees to use their fund to purchase property and often this accounted for a large proportion of their balance, but had the potential to cause breaches of the pension payment standards.
“If the SMSF has not got the ability to make its pension payments, it’s going to fall short of the minimum pension and moving forward it will no longer have a pension, as well as all the ramifications under exempt current pension income,” Besters told practitioners during a recent online briefing hosted by The Auditors Institute.
“If the fund doesn’t have the ability to fund those pension payments, then it’s going to have to sell down or liquidate an asset to be able to get more cash.
“It’s really quite crucial then around liquidity to be assessing that from an administrative perspective and this is a management issue.”
She noted that while she was not an auditor but worked as an accountant and adviser, it would be useful to highlight this issue in management letters.
“If you see there is a liquidity problem, just as if you see there is a problem with the terms of the lease, I do think they should be added into a management letter because you’re raising that directly with the SMSF trustee,” she added.
“You may be the only person that’s raised that with the SMSF trustee. It might not have been communicated to them previously or it might not be in the forefront of their mind, so I don’t see that it’s a problem raising it in your management letter.
“You would have to look at your processes to see whether that’s going to be appropriate, but some of these things should be raised and if it’s not raised by auditors, it definitely should be raised by their accountants.”
