As a lawyer, I do a substantial amount of work advising and representing approved SMSF auditors who are being audited/reviewed by the ATO and/or who have been referred to ASIC.
Accordingly, I was interested to see an article in selfmanagedsuper quoting ATO Acting Deputy Commissioner Paul Delahunty as follows (https://smsmagazine.com.au/news/2025/01/20/proof-of-transaction-terms-a-concern/):
Section 109 [of the SIS Act] always seems to be on our list of auditor issues each year. It presents itself in a number of forms so there is no catch-all type of transaction we’re talking about here that I can reference or assist you [with], but we do observe it across a broad range of investments and transactions …
As a general statement I’ll say that the auditors’ deficiency usually stems from not conducting enough, and in some instances any, verification of supporting documentation for transactions [involving items such as] leases, loan documents or purchase contracts to [allow them to] check for commercial terms, understand the nature of the parties to the arrangements when they are related parties and [to review] the market rate of return.
Paul’s comments are consistent with what I see in practice: the ATO (when auditing approved SMSF auditors) often lists section 109 in the position papers and/or in the ATO’s reasons for referral to ASIC.
In the event of an ATO audit of an approved SMSF auditor’s audit files, I assume that the approved SMSF auditor wishes to quickly satisfy the ATO. Here’s a rule of thumb that approved SMSF auditors might wish to consider to assist in achieving this goal. I stress that the following is only a rule of thumb. It is not my view of the law. It is not my view of industry practice.
The rule of thumb is as follows. For each SMSF real property asset, retain on the audit file full copies of all executed lease(s) covering the entire financial year. This is the case even if:
- the real estate is residential;
- the tenants are unrelated; and
- there is an annual statement from an arm’s length ‘name brand’ real estate agent.
I reiterate that:
- The above is only a rule of thumb.
- It is not my view of the law.
- It is not my view of industry practice.
I can think of many situations where an approved SMSF auditor properly fulfills their duties without having such full copies on file. Nevertheless, this rule of thumb can greatly assist in quickly satisfying the ATO.
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Bryce Figot ([email protected]) Special Counsel, DBA Lawyers
DBA LAWYERS
21 January 2025
