“One example covers fund trustees who have made a payment from the bank account of the fund, but the amount was larger than the balance, so it results in an overdraft on the bank account,” Muizer said at the SMSF Association Auditor’s Day.

“The ATO specifically says in the last sentence on the SMSFR that this is considered a borrowing, and the trustees have breached section 67.”

Muizer said some people may think the ATO is not correct in this example, and if relying on the definition of a loan, it is reasonable to consider that a bank overdraft may not technically be considered a loan as, presumably, there was no intention of borrowing.

“However, auditors need to consider what the ATO position is, and it does seem to be that a bank overdraft would be considered a loan,” she said.

In terms of auditors filing an auditor contravention report (ACR) for a bank overdraft, Muizer said there are a number of things to consider.

“If, for example, there was an overdraft of $20 in the first year and then $10 for year two, one thing to look at is materiality. For part A, the financial opinion, materiality can be quite high because it’s usually just a percentage of total assets, but for part B, the compliance audit, essentially, materiality is not relevant because either way, you’re going to have to do something,” she said.

“So, even if the breach is immaterial, you’re still going to have to always communicate it to the trustees. In this particular example, normally in year one, you would have made a management letter point to say the fund has gone into debt by $20 and please make sure you don’t do this again, otherwise, it might be required to be reported to the ATO.”

She added that according to the ATO reporting criteria, the relevant section to consider is test three – the trustee behaviour test – which states that if the trustee is aware of a breach and does it again, even if it was an immaterial breach, it is the auditor’s responsibility to make an ACR.

If there is any doubt about a bank overdraft breach and timing, Muzier said it is best to look at the standard reporting criteria.

She said it is best to look at whether the breach is above 5 per cent, but whatever decision is made, any management letter issued in the event of a breach must be very clear as to the course of action a trustee should take.