Amendments have been made to the Superannuation Industry (Supervision) Regulations 1994 (SISR) to extend the operation of SuperStream to cover self-managed super funds (SMSFs).  So what does this mean for SMSF trustees?

SMSF trustees are required to comply with the rules in Division 6.5 of Part 6 of the SISR for any rollovers, including partial rollovers, to and from a SMSF requested from 31 March 2021.  You may ask what is so special about 1 October 2021 if this has been required since 31 March 2021.  As is normal with a change of this kind, the ATO has given SMSF trustees a transition period and expects full compliance from 1 October 2021.

You may be aware, SIS Regulation 6.17 is a reportable contravention and also requires rollovers to be in accordance with Division 6.5.  Therefore auditors will look to obtain sufficient appropriate audit evidence to form an opinion on whether the fund has complied with the rules in Division 6.5.

Trustees and fund administrators should ensure that the following are included in the funds workpapers when sending to audit to avoid any delays:

Where the SMSF is the transferring fund of a rollover, auditors will request evidence confirming:

• the SMSF received the rollover request (which would have come from either the member, the receiving fund or the ATO)
• the rollover was made via SuperStream (for example, a printout from the trustee’s software provider), and
• the rollover occurred no later than 3 business days after receiving all the information required to process the request.

Where the SMSF is the receiving fund of a rollover, auditors will request evidence confirming:

• where the rollover request was received by the SMSF directly from the member, the SMSF trustee has used SuperStream to request the rollover from the transferring fund (for example, a printout from the trustee’s software provider); and
• the rollover was allocated to the member within 3 business days after it was received, and all information was received to enable it to occur.

Where a member requests a rollover to or from an SMSF on or after 1 October 2021, and an approved SMSF auditor identifies non-compliance with the rules in Division 6.5 and therefore a contravention of regulation 6.17 when conducting the annual compliance audit, they will be required to:

• notify the fund trustee(s) in writing
• providing the reporting criteria is met, report the contravention to the ATO via an Auditor Contravention Report (ACR; and
• modify Part B of the SMSF Independent Auditor’s Report if the contravention is material.

If you have any questions on concerns about meeting the payment standards when performing a rollover, please contact us.

It is a requirement under the Superannuation legislation to have asset’s recorded in the financial statements at market value. If you hold property in your fund, you may have experienced in the past the fund auditor or administrator requesting a current appraisal or valuation on a property held in the fund. This subsequently entailed a phone call to the local real estate agent requesting an appraisal on the property held in the fund. The real estate agent would then issue what is commonly referred to as a ‘kerbside’ or ‘desktop’ appraisal.

Is this still acceptable under the ATO Valuation Guidelines?

The ATO has updated its valuation guidelines in the past year. The ATO notes that when valuing real property, you may wish to consider using a qualified independent valuer, especially where the value of the property represents a significant proportion of the fund’s value

If you choose to do so, you are not required to obtain an external valuation each year. However, you still need to ensure the external valuation can be used to support the market value you have used when preparing the fund’s financial accounts and statements for any subsequent year.

If an external valuation has become materially inaccurate or a significant event (E.g. Natural disaster, COVID-19) has occurred that may have affected the value of the property since it was last valued you should no longer rely on it and obtain a new valuation or other evidence to support your valuation.

When valuing real property, relevant factors and considerations may include:

• the value of similar properties and recent comparable sales results
• the amount that was paid for the property in an arm’s length market – if the purchase was recent and no events have materially affected its value since the purchase
• independent appraisals from a real estate agent (kerbside/desktop appraisals)
• whether the property has undergone improvements since it was last valued
• the rates notice (if consistent with other valuation evidence)
• for commercial properties, net income yields (not sufficient evidence on their own and only appropriate where tenants are unrelated).

Unless the property has been recently purchased by the fund, you should consider a variety of sources to substantiate the market value of real property. The ATO states, “generally, it is not sufficient for valuations to be based on only one item of evidence in the above list.” When valuing real property assets for the purpose of preparing the fund’s financial accounts and statements, the valuation may be undertaken by anyone as long as it is based on objective and supportable data. A valuation undertaken by a property valuation service provider, including online services or real estate agent, would be acceptable.  However, the valuation must stipulate the supportable data.  For example, in the case of a real estate agent appraisal or online report, the valuation should list the comparable sales it relied on.

As the end of the financial year is approaching, we would suggest you look at the documentation that will support the property value in the financial statements. Further to this if you are arranging an appraisal for use in the preparation of the financial statements, we recommend you consider the updated ATO valuation guidelines.

If you have any concerns with meeting the updated ATO valuation guidelines please contact us.

The superannuation law requires all self managed super fund (SMSF) trustees to “formulate, regularly review and give effect to” an investment strategy for their fund.  With the ATO able to impose penalties on trustees who fail the investment strategy requirements, it is important for trustees to understand what is needed to develop a compliant investment strategy.

There is no prescribed format for the investment strategy under superannuation law, however there are specific factors that the investment strategy must consider:

• risks involved in making, holding and realising, and the likely return from your fund’s investments regarding its objectives and cash flow requirements
• composition of your fund’s investments including the extent to which they are diverse (such as investing in a range of assets and asset classes) and the risks of inadequate diversification
• liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses)
• the ability of the fund to meet its existing and prospective liabilities (such as when members retire and require a lump sum payment or regular pension payments)
• whether to hold insurance cover (such as life, permanent or temporary incapacity insurance) for each member of your SMSF.

The ATO in its guidance has noted when the trustees formulate the investment strategy it is not a valid approach to specify investment ranges of 0 – 100% for each class of investment.  The trustees should also articulate how they plan to invest their super or why they require broad ranges to achieve their investment goals.

What is the auditor’s role in relation to the SMSF investment strategy?

When conducting the annual audit on your fund, the auditor will check whether your fund has met the investment strategy requirements under the super laws for the relevant financial year. This means they will check that:

• your SMSF had an investment strategy in place for the relevant financial year that considered the factors outlined above
• your fund’s investments during the relevant financial year were in accordance with that strategy
• your strategy had been reviewed at some stage during the relevant financial year.

Where you don’t comply with the investment strategy requirements, such as being outside the investment ranges, we would recommend an updated strategy is prepared and provided to the auditor prior to the finalisation of the audit report.  For other matters it may be suitable to attach a signed and dated addendum to the strategy or a trustee minute which adequately addresses the requirements.

If you have any concerns regarding your investment strategy, please contact us so that we can assist you in maintaining a complying investment strategy when it comes to your annual audit.