SMSF trustees cannot rely on the reduced fee paid to register a company as corporate trustee or a company statement issued by the Australian Securities and Investments Commission (ASIC) as proof they have set up a special purpose trustee company for their fund.
Heffron head of education and content Lyn Formica pointed out these were insufficient evidence for an SMSF auditor as they did not provide information specific to a fund.
“The fact that a trustee company is paying the reduced fee for a special purpose company, isn’t that enough to say that it’s a special purpose company? Not necessarily and similarly [the same applies to] the ASIC company statement, [which] is not going to tell you it’s a special purpose company,” Formica said during a technical update today.
“The ASIC extract will say it’s a special purpose company, but the problem is you can go to ASIC and make a declaration to say you are dealing with a special purpose company, but you don’t give a copy of the constitution to ASIC.
“We have seen situations where someone actually doesn’t qualify as a special purpose company, even though they have ticked that box with ASIC.
“That’s why the auditor is asking for a copy of the constitution as distinct from the ASIC company extract.”
Heffron SMSF technical and education services director Leigh Mansell added auditors may also request a signed declaration confirming the corporate trustee only acts as trustee of the fund and a copy of the constitution to ensure there is a prohibition on paying dividends to shareholders of that company.
“What they are trying to do here is identify if they are dealing with a special purpose company which can’t do anything other than being a trustee of an SMSF,” Mansell said.
“One of the things the ATO suggested in their updated web guidance is for auditors to ask for these sorts of things and it also said just because an asset is held in the name of ABC Proprietary Limited, that’s not automatically a breach of the regulation on keeping assets separate.
“Yet there is an expectation on auditors to scratch a bit harder to make sure they are confident the asset is held beneficially for the fund.
“So you would expect your auditor to ask for some evidence that it’s a special purpose trustee company because that gives them some confidence that it’s not a company that on the one hand is the trustee for a fund, but on the other hand it’s also running a business.”
