End of year SMSF audit considerations & estate planning

End of year SMSF audit considerations and estate planning guidelines

Understanding the complexities of the Self Managed Superannuation Fund (SMSF) audit process is paramount to ensure your fund is compliant, and in the wake of the high profile Melissa Craddick case, and the missing millions of dollars, we anticipate SMSF auditors may now require additional independent evidence of the existence of SMSF assets and their relevant value at the end of each financial year.

We also provide an overview of the key considerations and specific requirements that apply to your SMSF estate planning, including wills and death benefit nominations.

What you can do to assist the auditor and avoid delays or qualified audit reports

Managing a SMSF means complying with a range of regulatory requirements, including the need for an annual audit. This audit is designed to ensure that the SMSF is being managed in accordance with the Superannuation Industry (Supervision) Act 1993 (SIS Act) and other relevant regulations.

To assist the auditor and avoid delays or qualified audit reports, it's essential to maintain transparency, accuracy, and proper documentation in your SMSFs financial reporting.

Here are some steps you can take to facilitate a smoother audit process:

Maintain clear and accurate records: Keep your financial records well-organised and up to date. This includes financial statements, ledgers, bank statements, invoices, contracts, and any other relevant documentation.
Timely and accurate financial reporting: Ensure that financial reports are prepared in a timely manner and are free from errors. This includes income statements, balance sheets, and cash flow statements
Comply with accounting standards: Follow the relevant accounting standards and regulations that apply to SMSF.
Segregation of assets: Implementing proper segregation of assets between your SMSF and personal/business assets is paramount to ensure the fund complies with the SIS Act.
Provide supporting documentation: Be prepared to provide supporting documents for all significant transactions and account balances. The auditor will most likely request evidence to verify the accuracy of the fund’s financial statements. In particular, providing copies of investment reports and distributions as soon as they become available will assist in the audit process.
Trust Deed and governing rules: Ensure the fund’s Trust Deed and governing rules are up to date.

By following these guidelines, you can contribute to a more efficient audit process and reduce the likelihood of qualified audit reports or delays.

If an SMSFs annual tax return is not lodged with the ATO by the due date, the fund will have its’ regulated SMSF status removed and will not be able to receive contributions or rollovers until the fund’s lodgements are brought up to date.

SMSF audit documentation checklist

Understanding the key considerations and specific regulatory requirements that apply to these investments and common audit issues that can arise is made much easier with our SMSF Audit Documentation Checklist.

DOWNLOAD CHECKLIST

End of year planning

With the new year just around the corner, now is the time for SMSF trustees and members to turn their minds to their estate planning, including their Wills and death benefit nominations within their SMSFs.

Wills and death benefit nominations

Members of an SMSF want their fund benefits to be paid to their preferred beneficiary in the event of their death. An effective way to ensure this occurs is to complete a Binding Death Benefit Nomination (BDBN). When correctly completed, a BDBN instructs the fund trustee that the death benefit must be paid to a beneficiary in the way specified.

Under some SMSF trust deeds, BDBNs are non-lapsing and will continue to operate from completion until the death of the member. However, other deeds do not allow non-lapsing BDBNs and in many of these cases, the BDBN lapses three years after they are completed.

The difficulty that can arise is that the fund member completes a lapsing BDBN, then loses capacity within the three-year period, and cannot execute a new BDBN. In this case, the trustee is now free to exercise its discretion and distribute the death benefit as it feels it should.

A decision by the Supreme Court of Queensland (Re Narumon Pty Ltd (2018) QSC185) considered whether a person who holds an Enduring Power of Attorney (EPOA) was able to renew a BDBN where the original nomination has lapsed, and the member had lost mental capacity.

The Court held that:

There does not appear to be any restriction in the superannuation legislation that would prevent a person who holds an EPOA from extending a BDBN for the person for whom they are acting as Attorney.
There was nothing in the SMSF deed that would prevent an Attorney from extending the BDBN. However, this would need to be checked in every instance. BDO recommends that your super death benefit nominations are reviewed by the lawyer who has prepared your most recent Will to ensure your testamentary intentions are consistent between your Will and your death benefit nomination.
The question of whether a BDBN could be extended under an EPOA would be dependent on the Power of Attorney Act in each state.

The issue of lapsing BDBNs can throw a person’s estate plan into disarray. However, Narumon’s case does provide a pathway whereby a fund member’s BDBN can be extended in some circumstances.

BDO’s team of Superannuation experts advise you to review your most recent death benefit nomination and ensure that it still expresses your wishes as to how you intend for your super benefits to be dealt with. Some older superannuation Trust Deeds may stipulate a binding nomination will lapse on its third anniversary unless it is re-executed.

Contact us

BDO offers professional and personalised superannuation advice. To find out how we can help you navigate the superannuation landscape, contact us today.

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