Two senior superannuation technicians have highlighted that SMSF auditors should not confuse ensuring a fund is making fair and reasonable allocations of earnings to members with the need for it to correctly apportion Division 296 liabilities to those impacted.
Heffron senior SMSF education specialist Natasha Panagis said following a recent stakeholder roundtable the ATO released updated guidance for auditors, emphasising the Division 296 tax did not change their existing obligations, but reiterated what was expected of them under the new impost.
“Auditors were reminded that trustees must allocate investment earnings to members on a fair and reasonable basis in accordance with the Superannuation Industry (Supervision) (SIS) Regulations,” Panagis stated in a client update last week.
“Where this isn’t satisfied, then auditors have been told they may need to modify their report.
“A fair and reasonable allocation of earnings doesn’t mean those SMSF accounts are going to match their share of Division 296 earnings.
“This is because the fund’s Division 296 earnings will be calculated differently to its net earnings for the purposes of the annual accounts.
“For example, the Division 296 earnings could use an adjusted cost base for the calculation of any realised capital gains and for that reason the earnings that are reported in the member statements may differ from the earnings used to calculate a member’s Division 296 tax liability.”
Heffron SMSF technical and education services director Leigh Mansell added while auditors were required to be aware of this difference in earning calculations, the ATO was not expecting them to test the veracity of Division 296 earnings figures.
“This guidance was in relation to the fair and reasonable allocation of earnings at the fund level. It wasn’t talking about auditors checking the Division 296 allocation among some members. It was purely looking at it from a SIS perspective,” Mansell pointed out.
“While there might be a different allocation for SIS than for Division 296, there was nothing in that guidance about auditors checking the latter attributions because that’s a tax issue, not a SIS issue.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason