Market valuations remain a top concern for SMSF auditors and the introduction of the proposed $3 million super tax has amplified the need to accurately determine the market value of SMSF assets.

“The top of the list continues to be market valuations, especially with the proposed $3 million super tax in sight,” Ms Banton said.

“Complex assets will continue to provide headaches for every professional in the SMSF food chain as trustees endeavour to find a market value that someone could reasonably be expected to pay if the asset was for sale.”

Auditors must ensure trustees establish a fair market value that aligns with what a reasonable buyer would be willing to pay if the asset were to be sold. This task can be complex, particularly for complex assets, and requires meticulous analysis.

Another persistent issue auditors encounter is the illegal early access to superannuation funds, often disguised as loans to SMSF members, according to Ms Banton.

SMSFs must remain vigilant in detecting such attempts and take the necessary steps to address them.

The ATO had also recently cautioned members to watch out for illegal early release schemes using an SMSF to help buy property in their personal name.

Money taken out of SMSFs during the pandemic can be re-contributed without penalty, but only if the correct waivers are filed with the ATO at the right time.

Making sure SMSFs are in order

Another challenge currently seen from an audit perspective is SMSF trustees leasing properties to related parties. This can create challenges when determining an accurate market value for the rent.

“The increased demand for rental properties coupled against a potentially weaker economic outlook adds more complexity,” Ms Banton said.

SMSFs will need to carefully review the lease agreements and ensure the rent aligns with fair market value to avoid potential compliance issues.

This is also especially the case when SMSFs lease business real property to related parties, as it must also verify the existence of a current lease agreement.

“Compliance with regulatory requirements such as section 109 and regulation 13.22C is essential in maintaining the SMSF’s compliance status,” Ms Banton added.

As the demand for investing in derivatives increases, SMSFs must ensure trustees have proper derivative risk statements in place, according to Ms Banton.

Derivatives can introduce complex financial instruments and risk profiles into an SMSF’s investment strategy.

The fund’s trust deed should either allow for investments in derivatives or not explicitly exclude them. This means the trust deed should contain provisions that permit the fund to engage in derivative transactions. The fund’s investment strategy must also clearly state its intention to invest in derivatives.

Auditors should review these risk statements to ascertain that trustees understand the risks involved and have appropriate risk management measures in place.

SMSFs should also make sure to review how it will manage contributions heading into the new financial year.

This includes providing a work test declaration if the member is between 67 to 75 and if they want to make a personal deductible contribution.

Compliance with regulations is crucial in maintaining the SMSF’s eligibility for tax deductions and avoiding potential penalties.

“Another challenge that plagues auditors is making sure members take the right steps before reinjecting COVID-19 funds as it could be counted towards the member’s caps,” Ms Banton warned.