by Alex Polorotoff

The ATO has indicated it will be placing a greater focus on scrutinising documentation and investment strategies as part of its review of SMSF audits this year, particularly in relation to the relief measures in response to COVID-19. 

Market valuations for fund investments will be heavily scrutinised this year, to ensure they accurately reflect their correct value as at 30 June given the potential market fluctuations in recent months.  Auditors will also need to ensure there is evidence to confirm ownership of fund assets is held by the correct entity.

Where SMSFs have provided rent relief to tenants, having the correct documentation in place is critical to avoid potential breaches where the relief could be considered to not be on commercial terms.  It also needs to be documented how COVID-19 impacted the tenant at the time the relief was provided and that all parties agreed to the change in terms, as evidenced by a signed agreement.

There has also been a large uptake for the early release of super benefits where members have been impacted by COVID-19.  The ATO has raised concerns about illegal withdrawals being made by SMSFs and have indicated they will be reviewing these applications, along with applications to setup new SMSFs.  

“We have seen some COVID-19 early release of super examples where people are doing the wrong thing. In some cases, we have stopped applications and prevented super money from being released. In other cases, we review circumstances after an application has been processed to ensure the integrity of the program,” the ATO stated.

They will also be utilising a number of different data sources to check for claims that didn’t meet the criteria.  It’s important members keep records to verify they were eligible for these payments at that time.  If the ATO requests this information and members are unable to provide it, they may be required to treat the amount withdrawn from their SMSF as taxable income in their personal return and subsequently pay tax on that income.

Investment strategies were a key focus for the ATO last year and will be so again.  As a result auditors will be paying closer attention to investment strategies to ensure they are compliant.  Of particular attention will be SMSFs where the majority of investments are in a single asset or asset class.

It is therefore critical that documentation is in place to support an SMSFs compliance with these changes.  Failure to provide the correct documentation can lead to delays in completing the SMSF accounts as well as contraventions which may need to be reported to the ATO.