When it comes to SMSF audits, we see a lot of the same issues coming up again and again. If you’re managing an SMSF or advising someone who is, here’s a list of the most common audit problems you should keep an eye on.
1. Breach of S.17A: Definition of an SMSF
A common situation is where trustees appoint a legal personal representative (LPR) under an enduring power of attorney (EPOA), but forget to remove themselves as trustees as noted in SMSFR 2010/2. It sounds simple, but this oversight happens quite regularly.
2. Breach of S.65 (Financial Assistance to Members) or Reg 4.09A (Separation of Assets)
We’ve all been there—trying to juggle multiple bank accounts, and suddenly, funds from the wrong one are being moved. When trustees mix personal and SMSF money (especially when both accounts are in the same banking app), it’s a breach of SIS.
3. Breach of Reg 4.09A: Separation of Assets (Again)
Insurance policies are another frequent offender. We’ve lost count of the number of times member life insurance or property insurance policies are held in the name of the member or another entity, rather than the trustee.
4. Breach of S.67: Borrowings
A classic mistake we encounter is when a member pays a deposit for a property and later reimburses themselves from the SMSF. While it might feel like you’re just shifting money around, this can be a breach of the borrowing rules.
5. Breach of S.109: Maintaining Investments at Arm’s Length
Do you have related party commercial properties in your funds? If so, make sure you’re applying lease terms like CPI increases—especially with inflation on the rise. We often see trustees skip this or have the SMSF paying outgoings on behalf of the related party, which is also another issue.
6. Breach of Regulation 8.02B: Market Valuation of Assets
Still relying on the “3-year rule” for valuing commercial properties? We see trustees cling to it, or rely on inaccurate CoreLogic reports that don’t quite cut it. The key is to use up-to-date, reliable evidence to support valuations.
Other Common Issues
Some other common problems include:
- Writing off shares too early: Delisted.com.au might allow for disposal of shares at nil value, but until a company is deregistered or a liquidator issues a declaration, you can’t claim a capital loss.
- Shares left valued at last traded price before suspension: After shares are suspended from trading, their value and classification need to be reassessed, considering appropriate valuation methods for unlisted shares.
- Notice of Intent to Claim: If your audit is overdue, S.290-170 notices might get signed outside of the required timeframe, which is often overlooked.
Final Thoughts
These issues are all avoidable with a little extra care and attention to detail. At SIS Logic, we’re all about making your SMSF audit as smooth as possible, so if any of these points sound familiar, feel free to reach out! We’re here to help keep your SMSF on the right track—no stress, just solutions.
