Speaking to SMSF Adviser, SuperConcepts general manager of technical services and education Peter Burgess said the addition of a new label on the 2019 SMSF annual return means that tax agents will now be required to identify whether Part A of the fund’s audit report has been qualified and to advise the ATO accordingly.
“This has not been a requirement in previous years. Part A qualifications don’t necessarily relate to SIS compliance breaches, so it’s unclear what the ATO intends to do with this information,” Mr Burgess said.
“A Part A qualification can arise, for example, when the auditor takes over the audit of an SMSF and they are unable to confirm the fund’s opening balances because they haven’t been provided with the previous year’s audit report, or the auditor may have concerns about the recoverability or value of a particular asset which is not material in value.”
Mr Burgess said it’s likely the label was added in anticipation of the introduction of three-yearly audits for some SMSFs.
This was a measure announced in the 2018 federal budget that never eventuated following considerable backlash from the SMSF industry.
“Under this measure, it appears any SMSF that received a qualified Part A or B audit report would have needed to be audited for that income year and would not be eligible for the proposed three-year audit concession for at least another three years,” Mr Burgess explained.
“Whilst it appears the ATO may have jumped the gun here, they obviously found themselves in a very difficult position. By the time the decision was made not to proceed with the three-yearly audit measure, it was too late to remove this label from the 2019 annual return. Hopefully, it will be removed from the 2020 return.”
This is particularly concerning as any qualification that is a breach means the fund is non-complying per section 42A(1) unless the Trustee or their adviser can obtain a section 42A(5)(b) notice from the Commissioner of taxation that the fund is complying because of rectification or the seriousness of the financial consequences of the breach. Alerting the ATO for breaches should spark great concern for clients in my view.
Has the proposed measure been removed? I thought it was still in limbo.
“Whilst it appears the ATO may have jumped the gun here, they obviously found themselves in a very difficult position. By the time the decision was made not to proceed with the three-yearly audit measure, it was too late to remove this label from the 2019 annual return.”
Might have been too late to remove, but there was/is nothing stopping them from offering guidance along the lines off ‘Not compulsory to answer this question for 2019FY”.