The Australian Taxation Office (ATO) has recently issued new guidance outlining what is expected of Self-Managed Super Fund (SMSF) auditors when checking for charges over an asset. This guidance aligns with Regulation 13.14 and 13.15 under the Superannuation Industry (Supervision) Regulations (SIS Regulations) and highlights the importance of SMSF auditors' role in ensuring the compliance of superannuation funds with the regulatory standards.

According to Regulation 13.14 of the SIS Regulations, the trustee of a fund must not give a charge over, or in relation to, an asset of the fund. This requirement is essential to maintain the integrity of the superannuation fund, ensuring that the assets are not encumbered and are available for members when they retire.

The ATO's new guidance emphasizes the need for annual evidence to confirm that the trustees have not given a charge over or in relation to a fund asset. This evidence can be obtained through:

• Seeking written confirmation from the trustees: This serves as a direct confirmation from the trustees that no charges have been given over the fund's assets.
• Performing a property title search to check for encumbrances on real properties: This is an essential step in identifying any charges or encumbrances that may have been placed on real property owned by the fund.
• Performing a search on the Personal Property Securities Register to check for other parties registering interests against other SMSF assets: This ensures that there are no other parties claiming an interest in the fund's assets.

Regulation 13.14 comes into play when there is a reportable contravention. A contravention is reportable when the reporting criteria are met. These criteria include the value of the contravention being the less of 5% of the fund’s gross asset or $30,000. When these criteria are met, the auditor must report this to the ATO.

Our Thoughts

It should be noted that this is not a new requirement for SMSF trustees and auditors have been checking the fund has not mortgaged property in their SMSF each year. Given the compliance required to get a new loan, I would find it impossible for a bank to lend to a SMSF using property in a SMSF as collateral. Banks understand they can only lend under a Limited Recourse Borrowing Arrangement (LRBA) so it would be difficult to pass their credit review teams.

At PWG we will be taking a pragmatic approach to this, requesting a title search every three years to uncover any rogue funds and obtain a written confirmation from the Trustees for the following two years

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.