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I am auditing a fund for the 2019 year, which is when it was set up. It has a corporate trustee and only one director (one member fund). During the year the fund went out and purchased a residential property in WA, however the member put his individual name in the offer and acceptance contract. The purchase was funded by the fund and is operating as if it's in the fund. It's apparent that it was the intention of the member for the property to be owned by fund - just an oversight by the new member at signing. I'm wondering if just an Acknowledgement of Trust is required to be drafted or whether a breach of R4.09A should be reported to the ATO?
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Thanks for your reply, very helpful. As a postscript, what is the best way of changing the name and will there be any stamp duty implications? Thank you.
Hi David
A similar issue to your query was raised recently & it is a common issue for auditors.
My view is that it is a compliance audit issue as I assume the title has the property as being owned by the individual rather than in the name of the corporate trust (in trust for the Fund).
Re the property Regulation 4.09A of SIS requires that:
"A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively:
(a) that are held by the trustee personally; or
(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund."
The ATO gives guidance on Regulation 4.09A of SIS & states at:
https://www.ato.gov.au/super/self-managed-super-funds/smsf-auditors/auditing-an-smsf/compliance-audit/
"The auditor should obtain evidence that the fund’s money and assets are held separately from money and assets held personally by the trustees or a standard employer-sponsor by:
· sighting asset ownership documents, including bank statements, to verify SMSF assets are held in the name of trustees on behalf of the fund (for example, R & J Smith as trustees for the Smith SMSF or R Smith Pty Ltd as trustee for the Smith SMSF) and not in the name of the trustees alone
· where State law prevents ownership in the SMSF’s name, checking for alternative documentation that protects the fund’s assets (for example, a valid declaration of trust)
· reviewing transactions on bank statements to ensure fund money is not mixed with money belonging to related parties of the SMSF.
Where there has been a change in trustees, the auditor should obtain evidence that ownership documents reflect the change."
My view is that an acknowledgement / declaration of trust is not sufficient.
Further my view is that I would not qualify re Regulation 4.09A if you raise it in your management letter and the trustee agrees to rectify the asset ownership re the property (and it will be corrected to be in the name of the corporate trustee). If you are not satisfied with the response from the trustee you should qualify your audit report and report it in your audit contravention report (ACR).
It would be great to get other members views on this issue as it is a common issue faced by auditors.
Thanks
SMSF AAA