In this blog series, CaseWare’s SMSF Audit expert and content provider Sharlene Anderson, outlines common technical SMSF issues, and what auditors need to consider for each.
Correct Names are Important
Having title to assets correctly recorded in the name of the fund is necessary to ensure ownership of the assets by the fund relevant to Part A Financial Report section of the audit report and to Part B Compliance section of the audit report in relation to regulation 4.09A of the SIS regulations.
Having the fund investments in the correct name assists the auditor with confirming ownership by the fund. It also adds an additional safeguard should either an individual trustee enter bankruptcy or a trustee company go into liquidation.
Correctly recording ownership also ensures compliance with regulation 4.09A of the SIS regulations which require trustees to:
keep the money and other assets of the fund separate from any money and assets, respectively:
(a) that are held by the trustee personally; or
(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund.
To rectify a breach, trustees should immediately arrange for transfer to the correct holding name and provide evidence of rectification to the auditor.
Assets should be held in the name of the trustee(s) ATF the superannuation fund. Certain investments such as listed securities should be held in the name of the trustee(s) with an account designator including the full or an appropriate abbreviation of the fund name (e.g. ABC Pty Ltd <ABC S/F A/C>). It is not considered appropriate for the account designator to merely include ‘<Superannuation Fund A/C>’ as this will not confirm for which superannuation fund the investments are held.
The ATO concede[1], that in some circumstances or jurisdictions, the property title may not be able to be held in the name of the fund. An example would be real property held in the state of Victoria. In such instances ownership must be clearly documented for example by executing a caveat, creating an instrument or Declaration of Trust and if possible ensuring purchase contracts be executed in the name of the fund or in the name of the trustees on behalf of the fund.
Life insurance policies must also be correctly held in the name of the fund or the trustee(s) as trustee(s) for the fund as right of ownership of the policy is an asset.
Holding name of investments following change in trustee
Where a fund has individual trustees and there is a resignation and/or appointment of one or more trustees the holding name of investments should be promptly changed.
Of course, if the fund has a corporate trustee and one or more members/directors resigns or is appointed, then there is no change in the name of the trustee. However, when there is a change from one corporate trustee to another corporate trustee as has commonly occurred as SMSFs change from having a trading company as trustee to putting in place a special purpose trustee company, the holding name of investments should immediately be transferred.
Arranging transfer of ownership of numerous bank accounts and investments can be onerous and is often left undone or incomplete.
In audits where a change of trustee has occurred the auditor should consider expanding the sample of investments tested to ensure that the holding name has correctly been amended. This is especially required where the SMSF holds investments in listed entities under a variety of HINs or SRNs.
Where instances of incorrect ownership are identified the audit sample should be expanded further still.
The wording of regulation 4.09A specifically requires fund assets to be kept separate from assets held by the trustee or employer sponsor personally. Accordingly, a view could be formed that fund assets being held in the name of another entity that is neither a trustee nor an employer sponsor does not constitute a breach of the regulation. However, from our experience this does not appear to be the ATO’s view of the operation of the regulation where it is expected all fund assets are appropriately in the correct name of the trustee as trustee for the fund.
Auditors must consider qualifications to the compliance conclusion of the audit report and the Audit Contravention Reporting requirements.
Auditors must also consider qualifications to the financial opinion of the audit report where incorrect holding names result in ownership of assets by the fund as being uncertain.
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[1]https://www.ato.gov.au/super/self-managed-super-funds/investing/ownership-and-protection-of-assets/#Assetsunabletobeheldinfundsname