When is an Auditors Contravention Report Required

Annual reporting requirements for a Self-Managed Superannuation Fund (SMSF) require a SMSF to lodge an SMSF Annual Return within 11 months following the end of a financial year.

Prior to the lodgment of the return, the trustees of a fund should arrange and appoint a Registered SMSF Auditor to audit the Financial Report.

If in the normal course of conducting the audit, the auditor forms the opinion that a contravention of the SIS Act and/or Regulations has occurred either:

  • during the year of income being audited
  • before or after the year of income being audited.

then the auditor must lodge a report within 28 days of completing the audit.

However, it is important to note, not all breaches need to be reported to the Australian Taxation Office (ATO).  The reporting criteria that determines if an ACR is required to be lodged is based on seven tests.  These tests are grouped under the following categories:

  • Fund Definition Test – whether the Fund satisfies the definition of a SMSF and therefore enjoys the concessional tax rate of 15%
  • New Fund Test – if any single contravention exceeds $2,000 within 15 months of establishing a SMSF it is reportable by the auditor to the ATO
  • Trustee Behavior Tests – three tests are used to analyse trustee behavior. These include whether previously reported breaches have been rectified or repeated and failing to meet the 14 day reporting statutory time period.
  • Financial Threshold Tests – the two tests used are (i) where the total value of all contraventions is greater than 5% of total assets of the Fund and (ii) where the total value of all contraventions is greater than $30,000.

The ATO also encourages an SMSF auditor to use professional judgement when reporting breaches.

Upon receipt of an ACR, the ATO assesses the risk of the contravention as being a low, medium or high risk. The course of action taken by the ATO depends on the risk and can range anywhere from a phone call to a detailed audit of the SMSF.

Throughout the audit process, it is important to work with your auditor to provide adequate information to the ATO in relation to the breach and its planned rectification.  This is important so the ATO is informed and able to determine the suitable course of action for the breach.