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If you’re a self-managed super fund (SMSF) trustee, you’ll know that you have legal compliance requirements to:
- have your fund audited by an independent, ASIC-approved auditor each year, and
- lodge an annual SMSF return to the Australian Taxation Office (ATO),
SMSF auditors conduct both a financial and compliance audit of an SMSF’s operations as part of their annual auditing process. The financial audit analyses all of the fund’s financial statements (i.e. balance sheet, income statement and member statement) based on Australian Auditing Standards. The compliance audit analyses the fund’s compliance with all superannuation legislation.
Upon completing their financial and compliance audits, an SMSF auditor must complete an independent auditor’s report document that the Australian Taxation Office (ATO) provides. This report must be provided to the trustees of the SMSF within 28 days of the auditor receiving all relevant documentation.
If there have been any breaches (contraventions) of super legislation revealed in the compliance audit, auditors must report them to the ATO within 28 days using an ATO-provided contravention report document.
If you don’t use the services of an accountant to prepare your SMSF financial statements, this article contains tips for:
- ensuring that you provide your auditor with all the information they need to ensure that process will be as smooth as possible, and
- filling in your SMSF tax return.
We’ll look at both of these topics in turn in this article.
Preparing SMSF financial statements for your auditor
If you’re an SMSF trustee and you’re not using the services of an accountant, you must provide your fund auditor with all relevant documentation for your fund’s accounts and financial transactions for the financial year being audited. For example, all your financial and bank statements for that period. If your SMSF auditor subsequently requests any further information or documentation, you must provide this material within 14 days.
Using software to prepare your SMSF financial statements
There is a range of software available on the market to help you prepare your SMSF financial statements. However, it can be worthwhile to check with your auditor about the software they use, as using the same software will likely make the auditing process both smoother and cheaper.
SMSF balance sheet
Your SMSF balance sheet should show all the assets of your fund, along with any liabilities (such as any limited recourse borrowing arrangements your fund may have that have funded the purchase of investment property assets).
The assets in your SMSF balance sheet must all be in your fund’s name and listed at their current market value. You should have supporting documentation for how your assets have been valued. ATO guidelines for valuing the most common types of SMSF assets are provided in the table below.
|Listed securities (e.g. shares and managed funds)||These assets must be valued at their closing price on their approved stock exchange or market (e.g. the Australian Securities Exchange) on 30 June each year.|
|Unlisted securities (e.g. shares in private companies or units in unlisted trusts)||To determine market value, fund trustees (or an independent valuer) need to consider the value of the assets in the company or trust, and/or the amount paid for the unlisted security.|
|Real property||A valuation is not required each year, but it should be done if market conditions or other circumstances that may affect the property’s value have changed. For example, if renovations have been done to an investment property owned by the SMSF, or if the net income yield of a commercial property has changed.
This valuation could be done via an independent appraisal or by researching recent selling prices of similar properties to use as comparable, objective valuation data.
|Collectables and personal use assets when sold or transferred to a related party||The market value of these assets must be determined by a qualified independent valuer.|
|Determining the value of assets that support any pensions in your SMSF||The market value of these assets need to be determined based on objective data on
SMSF income statement
Your SMSF income statement should include all fund income from member contributions and fund earnings, less any associated tax-deductible expenses.
In terms of income, super funds (including SMSFs) are taxed on member contributions and their investment earnings. These contributions and earnings are taxed at the concessional super rate of 15% in Australia, up to certain contribution limits.
In terms of SMSF expenses, some are tax deductible and some are not. It depends on whether they relate to the fund gaining taxable income or not. Expenses are tax-deductible if they relate to the fund gaining taxable (i.e. assessible) income.
Examples of tax-deductible SMSF expenses include:
- operating expenses,
- investment-related expenses,
- tax-related expenses,
- insurance premiums,
- statutory fees and levies,
- legal expenses,
- storage fees for any collectables and artwork assets that the fund may have.
SMSF expenses are not tax deductible if they:
- relate to generating super pension income (because this income is tax-exempt, unless it is a transition-to-retirement pension), or
- are capital expenses, such as the cost of purchasing fund assets.
It’s important to have appropriate documentation to support all the items in your SMSF income statement. All invoices and receipts should be in the name of the fund, not in the names of individual members of your fund.
SMSF member statement
SMSF member statements should include details of:
- their share of the distribution of fund earnings.
- any payments made to them (such as lump sum withdrawals and super pension payments).
- each fund member’s contributions made during the year.
- the types of contributions made. Super contributions can be concessional (i.e. before-tax contributions that are taxed at 15%, as mentioned earlier in this article) or non-concessional (i.e. after-tax contributions that are not taxed when they enter the fund). Each type of contribution also has different caps that limit the extent of contributions that can be made each year without incurring additional tax obligations.
- tax payable.
- their individual fund balances in the accumulation and retirement phases
Filling in your SMSF tax return
As an SMSF trustee, you’re legally responsible for submitting your fund’s audited annual return to the ATO and ensuring any associated tax obligations are paid in full. SMSF annual return forms can be downloaded from the ATO’s website.
The current SMSF annual ATO return has 11 sections, as follows:
Section A – Fund information
This section requests information such as your fund’s tax file number (TFN) and Australian Business Number (ABN), bank account details, and your fund auditor’s contact details. Completed returns must include your fund auditor’s details, otherwise they will automatically be rejected.
Section B – Income
All of your fund’s income sources and amounts are itemised here and can be obtained from your audited income statement.
Section C – Deductions and non-deductible expenses
Non-deductible expenses include any expenses that relate to super pension income (except transition-to-retirement pensions). As mentioned earlier in this article, because all other super pensions are exempt from tax, you cannot claim tax deductions for expenses relating to this income.
Section D – Income tax calculation statement
This is where you calculate the tax your fund is liable to pay from your financial statements. You can also use any franking credits your fund may have received on Australian share dividends to reduce your tax liability.
Section E – Losses
This section allows you to carry forward any prior year losses (if you have any).
Section F – Member information
You need to provide each member’s tax file number and information about their individual contributions, earnings and account balances here.
Section G – Supplementary member information
This section is where you include information on any fund members who have left the fund during the period covered by the return (for example, deceased members or others who have voluntarily left your SMSF).
Section H – Assets and liabilities
The information for this section can be obtained from your fund’s audited balance sheet.
Section I – Taxation of financial arrangements
This section only needs to be completed if the total value of your SMSF’s assets exceeds $100 million.
Section J – Other information
This section only needs to be completed if your SMSF wants to be treated as a family trust or interposed (group) entity for tax purposes.
Section K – Declarations
This is where you sign to verify the accuracy of all the information provided in your SMSF return.
If you are lodging your SMSF annual return yourself (i.e. you’re not using the services of a tax agent), the due date is 28 February in the following financial year, unless it is a return for your fund’s first year of operation (in which case, the due date is 31 October). Failing to lodge your return by the due date can result in ATO penalties and a potential loss of your fund’s concessions.
Once your completed return is lodged, it will be deemed to have been automatically assessed. In other words, you don’t subsequently receive a notice of assessment from the ATO like you do with your individual tax return.
Prepare your SMSF’s financial statements yourself can be time-consuming and complex. It may be worthwhile to use the services of an accountant who specialises in providing this service for SMSFs, especially if the operations of your fund are large or complex.
The information contained in this article is general in nature.