[vc_row][vc_column][vc_column_text]The ATO and Courts have been busy of late with superannuation matters. Two recent court cases highlight the need for fund auditors to be vigilant on the market valuation provisions under the SIS Regulations.

The SIS Regulations outline that all SMSF assets must be reported at their market value each year. Many SMSF’s invest in unlisted companies and unit trusts; it is becoming increasingly difficult for auditors to obtain sufficient, appropriate audit evidence for the market value of those investments. It is not the auditor’s job to undertake a valuation, as it’s the trustees’ responsibility to provide the evidence on how the asset was valued.  This was the most common breach reported to the ATO during the current year, and a recent ATO article indicates they expect more auditors to issue qualified audit reports and auditor contravention reports for the breach of the market value provisions. Fund trustees need to take the market valuation requirements into consideration when they are considering investments/loans to unlisted companies and unit trusts.

The ATO recently issued a draft Law Companion Ruling (LCR) on the non-arm’s length income (NALI) provisions as they apply to SMSF’s. The draft LCR provides numerous examples of the ATO’s interpretation of the NALI provisions. Some of the examples include a SMSF purchasing an asset for less than its market value and also limited recourse borrowing arrangements between related parties. If the SMSF cannot show that the transactions have been conducted on arm’s length terms and conditions, the ATO may apply the NALI provisions to the whole arrangement.  The outcome is that SMSF pay the highest marginal rate of tax (45%) on NALI compared to the normal 15% tax rate.

Please do not hesitate to contact Mark Hill or one of the Trove team with any superannuation queries.[/vc_column_text][/vc_column][/vc_row]