How to prepare for an SMSF auditor and fill in your SMSF tax return

Any tips for SMSF trustees when preparing their fund for audit?

I always love this question because I very cheekily always suggest that they just try their best to make their auditors happy. But, some practical tips, just retaining that information. And even if you think, oh, I know, I've got it, I know the auditor will need this. You put it in that box and you inevitably forget where that box is. The auditor is not going to be unhappy with you if you send it to the auditor when you've got it.

I know I do that for my auditor. I've admitted my older children into my super fund once they've turned the age where they started to get SG. So I'd admit them to the Superfund. I actually at that point in time send it to my auditor and say, just, here's a heads up, here's what you're going to need for when you get my file in for audit. So anything that's proactive like that, auditors love.

One of the big challenges we get is typically over-valuations of property and things like that. So if you can organise appropriate appraisals and have that documentation ready to go, it just makes the audit process much smoother.

The other thing auditors love is actually having trustees ask them questions. I much prefer my trustees to ring me up and say, 'Can I do this? And if I do, what should I consider?' Versus the ones that ring me up going, 'I did it, is it OK?' So ones that are proactive and say, 'OK, I would like to have this investment', or 'I would like to have this approach', or 'this is what I want to do, what should I consider?' Because then we can remind them that check your investment strategy that allows that investment, or make sure you keep this paperwork, or if you're going to buy a property, make sure it's in the name of the trustee, not in your name, for example.

So there's things that we can assist the trustees along the way and then when we get to audit, there's no surprises, there's no headaches. And the trustees go, 'well, that was nice and painless, that's nice and easy'.

Now, timing is obviously always crucial. Auditors are incredibly busy in the lead-up to the May deadline. Any trustee that gets in well before that are our favourite clients. So trustees that are well prepared and have everything ready to go versus 'here's the dog's breakfast of information'. That just makes the process a lot smoother.

And for me, I do time-based audits. I don't have fixed fees because every fund is different and I never think it's reasonable for the smaller funds to be compensating the larger funds or the small activity funds compensating the large activity funds. So my clients, who then collate everything and have it in a nice orderly manner, makes the audit quicker and smoother and therefore their audits cheaper by default.

Is there much difference auditing SMSFs that are in pension phase?

Not really, other than it's just a few extra audit steps. So if you're in pension phase, we might often need an actuarial certificate to assist with the tax calculations. That needs to be provided before the audit can be finalised. We also have to check that they've met their minimum obligations and that they've made a series of payments in terms of their eligibility for their tax concessions.

The one area that I see pension funds, not tripping up on, but they could be a little more streamlined doing it is the partial commutation requests. So if you've got a member in pension mode, they only want to take out the absolute minimum, obviously for cap reasons.

If they take out a little bit extra, you can have a partial commutation of your pension account. If they don't have the paperwork in place, it's not a partial commutation. It's not considered a lump sum payment. So they've got to get that paperwork in place at the time. They've got to request the trustee that portion of my payment from the pension, 'I want X dollars to be a pension and Y dollars to be a lump sum partial'.

Were there any interesting insights from your conference discussion with the ATO?

Some of the interesting topics were in relation to the SuperStream. So there's new rules in relation to how fast rollovers have got to be processed, and there's an audit consequence for that because the rollovers fall under the payment standards. And auditors, we check rollovers, we check where they go, we check when they come in, but never had to check the timing of them before.

And the SuperStream requirements are a mere three days as to when rollovers have to be processed. So auditors who have to sign off on the payment standards in the audit process now have this three day rule to be checking out. So it was a really timely, I guess, bit of information that we do have to incorporate that into our 2022 audit processes. It's not something that we've had to do before.

There's also discussion about the new six member SMSFs. So I haven't seen any yet. There's a lot of colleagues that have. But we were talking about whether we need to have our engagement audit, engagement documents, our audit representation letters signed by all six if there's six in the fund, or whether there's just a select few, because the rules have changed as to how many people have to sign the financials if there's a six member fund. So there's a conversation about that in terms of how auditors are going to manage that in practise.

Are the rollover rules the same for all super funds?

All superannuation providers have to now comply with the superannuation rollover requirements, in terms of that three day rule. In the past, it wasn't an audit issue. Essentially, the rollovers come in, we just audit the rollover. We don't look at how long it took to get into the fund. And if there's a rollover leaving the fund, we don't look at when the member requested to roll out. We never had to worry about that before.

Now, of course, for our 2022 audits we will be looking at when the trustee got the rollover request, how long it took to process, and we'll be going through that essential payout timeframe to make sure they've complied with the payment standards. If they haven't complied, it might equate to a qualified audit opinion and ATO reporting because of the compliance contravention that might exist there.

Does it seem likely that the proposal for three-yearly audits is not proceeding?

Yes, OK so I'm very happy that that appears to be well and truly dead and buried. I was a very loud advocate for not wanting the three year audit cycle. I appreciate that some trustees might have thought, 'oh, this is good, because I don't have to engage an auditor each and every year'. But in practise, we have a lot of clients that are very late in getting their work done. And so we might be doing three, four, five, possibly ten years audits in one hit, and they're always problematic.

It's challenging enough to have clients contain and retain the information for the one year. The thought of doing two and three years in one hit, I could just see cost actually escalating not decreasing as was proposed or hoping that would happen. There certainly would have been some smaller nominal costs that might have been saved. We do title searches every year for funds with property. So if you're doing a three year audit in one, you would just get one title search versus doing the annually, and you get three over that period of time. But to me, that was a nominal cost saving compared with all the extra time that it takes to do a very delayed audit.

So for me, I was very vocal in saying, I don't think this is a good idea for the trustees from a cost perspective and also from an industry perspective. Trying to keep track of 'I did your audit four years ago. Am I still your auditor? I don't know whether you're coming back'. I think it would have been very clunky to manage. Yeah. And for me, I just thought it wasn't in the best interest of maintaining the integrity of the super system. You had a lot of trustees which would then be responsible for going, 'oh I've had a triggering event. I now need to get my audit done'. Clients never know that they've had an event until quite often. The auditor says, 'you've got this contravention, you've got this compliance issue, you've got these other concerns'.

Trustees wouldn't really have been in the box seat to be able to drive when they needed their audit done. And I could just see that just creating more headaches and stress for trustees who, in the main, they want to do the right thing. And can you imagine a trustee that gets to year three thinking that everything is all clear sailing? Actually, you should have had your year one audit done in year one because there's an issue in year one, and then that snowballs each and every year. That was how the proposal would have essentially worked in practise.

So I haven't heard anything for a very long time. I have a lot of people asking me, but I'm very happy that it's just regular annual audits. It just seems to be a more practical approach to me.

Did the ATO have a position on the proposal?

Look, I don't think they took a position. It was not really driven by the ATO. But having said that, the ATO were involved in the conversations. Treasury was certainly very proactive in seeking feedback and having consultive meetings with the various stakeholders. And it was refreshing that you could actually go in and have a conversation, these are my concerns and these are why'.

And from my audit perspective, I was actually invited by Treasury to go and have one-on-one conversations with them, and I took in, 'well these are all the things we do as auditors annually and this is where the problems are going to start coming out if we have a delayed audit process'. And so they were actually really welcoming of that information because it gave them a really good platform, I think, to make the appropriate decisions.