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

Preparing SMSF financial statements for your auditor

If you are 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. This includes all your financial and bank statements for that period.

If your auditor requests further information or documentation, you must provide this material within 14 days.

Using software to prepare your SMSF financial statements

Preparing your SMSF financial statements can be a fiddly and time-consuming task but you can make life easier for yourself by using one of the software solutions that are readily available on the market. However, check with your auditor first, because using the same software they do could make the auditing process 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 used to purchase investment property).

The assets in your SMSF balance sheet must be in your fund’s name and listed at their current market value. You should have documentation to support asset valuations. ATO guidelines for valuing the most common types of SMSF assets are provided in the table below.

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. Higher income earners are taxed an extra 15% when their income and contributions are over a certain threshold, currently $250,000.

As for your SMSF expenses, some are tax deductible and some are not. Expenses are only tax deductible when they relate to the fund earning taxable (assessable) 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 collectables and artwork assets in your fund.

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)
• Are capital expenses such as the cost of purchasing fund assets.

It is 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 (before-tax contributions that are taxed at 15% or 30%, as mentioned earlier in this article) or non-concessional (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 penalty
• Tax payable
• Their individual fund balances in accumulation and retirement

Filling in your SMSF tax return

As an SMSF trustee, you are 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. But be warned: it’s a lengthy document so make yourself a strong cup of coffee or tea before you start.

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 be rejected automatically.

Section B – Income

All 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 can’t 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 franking credits your fund received on Australian share dividends to reduce your tax liability.

Section E – Losses

This section allows you to carry forward 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 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 found in 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 fund’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 (that is, you’re not using the services of a tax agent), the due date is 28 February in the following financial year, unless it’s 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 tax concessions.

Once your completed return is lodged, it is deemed to have been automatically assessed. In other words, you won’t receive a notice of assessment from the ATO as you do with your individual tax return.

The bottom line

Preparing your SMSF’s financial statements yourself can be time-consuming and complex and may increase the potential for unintended errors. So it may be worth using the services of an accountant who specialises in SMSFs, especially if the operations of your fund are large or complex.

The information contained in this article is general in nature.