In the May 2018 Federal Budget, the Government proposed that SMSFs with three years of clean audit reports and returns lodged in a timely manner would be eligible to move to a three-yearly audit cycle rather than being audited every year.
Not unexpectedly, this announcement led to a number of questions by SMSF trustees and their auditors. Thankfully, the Government has now released a discussion paper on this proposed change which gives us a bit more of an idea of how it may work.
We’ve summarised the main points below:
- Not every SMSF will be eligible for a three-yearly audit.
- Eligibility requirements are still to be finalised but are proposed to be determined by whether the fund’s auditor has reported to the ATO any contraventions of the superannuation law in the last three years and whether the fund has lodged its SMSF Annual Returns on time.
- Where a fund is eligible for a three-yearly audit, the auditor will still be required to audit each of the three years in that period. For this reason, we do not expect there will be any significant reduction in overall audit costs (although funds may only actually pay their audit fee once every 3 years).
- It is proposed that eligible SMSF trustees will be able to choose whether or not to move to the three-yearly audit cycle. Some trustees may choose to remain being audited annually simply as a means of keeping on top of their record-keeping. Locating a missing bank statement can be troublesome enough say 12 months after the event, let alone potentially 4 or more years later.
- In addition, if an eligible fund experiences a “key event”, eligibility would cease (at least temporarily) and an audit would be required before the SMSF Annual Return for that year was lodged. This audit would need to cover all financial years since the SMSF’s last audit.
A “key event” is proposed to include events like:
- the commencement of a pension for the first time,
- the death of a member,
- the addition or removal of a member,
- the commencement or continuation of a limited recourse borrowing arrangement,
- the purchase of an asset from a related party, or
- investments, loans or leases with related parties.
But the year after the key event, provided the auditor doesn’t report any contraventions to the ATO, it is proposed the fund would be eligible to return to a three-yearly audit.
- Whilst it is proposed that this change will commence for audits for the 2019/20 financial year and onwards, transitional arrangements may mean funds become eligible on a staggered basis to assist auditors in adjusting to the new arrangements.
We expect there is still a lot of consulting and negotiating to be done before we see this proposal legislated. However, as you can see, there may be far less cost savings for SMSF trustees than the initial announcement suggested and some trustees will choose to remain on an annual audit cycle.