ATO Auditor Compliance Program results for 2024–25
The ATO completed over 200 SMSF auditor reviews during the 2024–25 financial year. They referred 41 auditors to ASIC for not complying with the audit and assurance standards and 36 auditors cancelled their registration.
The main compliance issues included not obtaining sufficient and appropriate audit evidence for the auditor to form an opinion on the fund’s financial statements and whether the audited fund complied with the super laws. There was also a lack of evidence that fund transactions were at arm’s length and not reporting the fund assets at their market value.
Separation of assets
The super law requires fund trustees to keep money and other assets of the fund separate from those held by the trustees individually or by a standard employer-sponsor or their associates.
The ATO considers the fund assets must be held in the name of the trustee ‘as trustee for’ the fund. This may not be possible in some cases where the law requires an asset to be held in the name of the legal owners rather than as trustees for the relevant fund. In these cases, the auditor has an obligation to ensure the fund assets are legally owned by the fund, held by the trustees beneficially on behalf of the fund and are separate from the trustees’ personal or business assets.
Legal ownership can be evidenced by a declaration or acknowledgement of trust executed by the trustee over the fund’s asset. Where this type of documentation is not available the trustees should seek legal advice.
If the fund does not separate its assets and comply with SIS regulations it is a reportable contravention. The auditor should notify the trustees in writing of the breach and also the ATO via the SMSF Independent Audit Report if the contravention is material. Also, the breach should be reported in an Audit Contravention Report if the ATO’s reporting criteria is met.
What happens when a pension ceases?
The ATO’s opinion on when a pension commences and ceases is published in Taxation Ruling 2013/5. While it is relatively clear when a pension commences it may cease suddenly for tax purposes when certain events occur.
As a general rule a pension commences when all the capital with the purpose of supporting the income stream has been set aside in the fund. The commencement day of the pension is the first day of the period to which it relates.
In contrast, the tax ruling points out that a pension ceases when there is no member or beneficiary entitled to receive it. Examples include when:
- the pension has a $nil balance,
- it has been converted (commuted) in full to a lump sum,
- a person in receipt of a pension dies, and no one is entitled to automatically receive it,
- the amount of the pension paid is less than the amount required under the SIS Act orthe Commissioner’s General Powers of Administration, or
- a child in receipt of a death benefit pension reaches age 25.
What the ruling does not tell you is that if a client has exceeded their Transfer Balance Cap and has received an excess transfer balance determination problems can arise. In this situation the client has a number of options which include:
- not commuting the excess amount notified in the determination in full by the due date, or
- making an election for the ATO to send a commutation authority to the fund and have the excess commuted in full or in part.
Where the:
- income stream was commuted before the notice was received,
- pensioner has died, or
- notice was issued in relation to a capped defined benefit income stream (CDBIS)
the ATO is required to be notified of the event.
If a member’s super fund has not commuted the excess amount as notified in the ATO’s commutation authority within 60 days of the issue date then the pension stops being in retirement phase. This means the pension is treated as ceasing from the commencement of the relevant financial year. Any income earned on the assets that were supporting the pension are taxed as though they are part of the fund’s accumulation phase assets. Any pension payments made to the member in the financial year are treated as lump sums.
It is possible to commence a new pension from the start of the next financial year. However, the calculation of the new pension will be treated as if it has commenced from the fund’s accumulation phase assets. This may result in the taxable and tax-free amounts being different from the previous pension.
Accountants and auditors of SMSFs will need to be on the lookout for retirement phase pensions where the aggregate commencement values could be in excess of the member’s Transfer Balance Cap. In these situations, they could expect the pensioner has been notified by the ATO that there is an excess amount which needs to be commuted. If the fund has received a commutation authority then the accountant or auditor needs to confirm that the commutation has been made within 60 days of the issue date. If this has not occurred then the fund will not be able to claim an earnings tax exemption for the relevant income stream in the income year or possibly for any later income years.
Crypto currency fact sheet
The value of crypto assets in SMSFs as at March 2025 was $1.675 billion. As crypto assets are a relatively new asset class and increasing in popularity there are some fundamental issues that trustees and their professional advisers must become familiar with. This includes accounting for the asset, it’s location, storage, ownership and access to the asset which may provide a challenge.
Because of the fluid and intangible nature of crypto assets proof of the existence may depend on getting access to relevant email accounts, mobile phones and other devices. These store important asset information or are used as part of two-factor authentication or multi-factor authentication. Relying on these devices as information and storage sources creates a risk for the fund as investor. There’s also the issue of whether the crypto assets can be located, accessed and accounted for including whether successor trustees or corporate trustees in the long term have a legal right and practical control to recover the crypto assets.
The ATO has released a Tax and crypto asset investments factsheet to assist professionals and their clients when preparing fund accounts. It includes the records that need to be kept for crypto assets including income tax and CGT