SMSF Audit Self Managed Super Funds

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Level 25, RBS Tower @ Aurora Place, 88 Phillip Street, Sydney NSW 2000 T: (+61) 2 8211 0450 F: (+ 61) 2 8211 0555

www.harrisfraser.com.au 2

Why set up a Self Managed Super Fund (SMSF)?

Control

SMSF assets are totally under the control of the Trustees. The Trustees are responsible for taking all decisions on where to invest the assets, whether it be in investment property, equities, a managed fund or term deposit. In other words, control lies in the hands of those who actually put up the money – the Trustees.

Low Tax

At fifteen per cent, SMSFs have one of the lowest tax rates of any entity in Australia. The great thing is that the SMSF tax rate can be reduced even further by offsetting other tax credits. SMSFs are allowed to control exactly when assets are disposed of. Therefore, if an SMSF acquires an asset today and it appreciates by xxx% by the time its members retire, it can be rolled over to an allocated or complying pension fund and there will be 0% tax to pay on the realised capital gain of the asset in question.

Low Cost set-up

Harris Fraser (Australia) provides a low-cost set-up service to make it easy for you to start a SMSF. We even tell you how to do it all yourself, and charge a facilitation fee of $799 to assist you if you want us to set it up for you, and this includes the Trust documentation (but excludes the financial advice).

Low Fees

An SMSF with Harris Fraser (Australia) provides you with an extremely competitive fixed-fee structure with certainty on the costs of operating your Fund. These are outlined on the “What does it cost section.”

Asset Protection

In the unfortunate event of bankruptcy, assets belonging to SMSF members are generally protected from creditors.

Retirement Income Control

An SMSF provides the highest level of flexibility and control over the distribution of benefits in retirement, whether you wish to take your superannuation benefits in one lump sum, continue to invest, or receive it as a pension, it’s entirely up to you.

Pool Together Family Members’ Superannuation

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1. Trust Deed

The ATO sets out the guidelines on what is required for a Trust Deed, and can be obtained by a lawyer. Harris Fraser (Australia) will provide a Trust Deed to you, included in your facilitation cost for SMSF set-up.

2. ABN and TFN registration

The ATO is the regulator of SMSF’s and arrange for the registration of new Funds. You can apply for an ABN yourself from the Australian Business Register. The web address is:

https://abr.gov.au/

2. Trustee Minutes

The new Trustee and Beneficiaries have to attend a meeting and prepare minute noting the establishment of the new SMSF. Use Harris Fraser’s Initial Minute template for this meeting and similar meetings the Trustees will conduct in future.

3. Investment Strategy

The SMSF should have an investment strategy setting out what to invest in and the risk profile of investments. See our Investment Strategy Template you or your adviser can amend for this purpose in alignment with your financial plan.

4. Trustee Declaration

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5. Annual Financial Statement

Trustees should keep records of all transaction the SMSF conduct throughout the year. Then prepare a set of financial statement. We have a template you can use to prepare your SMSF 2011 Financial Statements, however, your statements can also be prepared by our accounting service.

6. Tax Return

You should also prepare a tax return for your SMSF. All the information needed for the tax return will come from the template on the financial statement. This is similar to an individual tax return and if you have done your personal tax return before, you should be able to complete the Fund return, however, this is provided by our accounting service.

7. Audit

The only function the Trustees can’t perform themselves is the annual audit. The Trustees can prepare

financial statement and have the supporting documents ready. Attached to this document are the audit requirements. If you have all this in place, the audit should be without any issues. Our audit service, offers fixed price audit of $699, or you can use any provider you prefer.

The audit requirements that you should prepare prior to audit are attached in the SMSF Audit Checklist (from the ATO). See Appendix A page 13 – 23 for all the requirements.

8. Supervisory levy

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Conclusion

The DIY SMSF route is open to you as Trustees. Feel free to use this. If you want to use an administrator, look at the total fees. Also flexibility. There is no use to pay the lowest administration fees and pay higher brokerage and receive low bank interest.

Harris Fraser (Australia) provides a great value SMSF service. If you want to use Harris Fraser to perform these steps for you, we promote our service by having an all-inclusive set-up, trust and facilitation fee of $699. Or have a go yourself.

Let us know how we can help.

YOUR PEACE OF MIND

Harris Fraser (Australia) is an independently owned company providing specialist Self-managed Superannuation Fund (SMSF) services. We are based in Sydney and have clients throughout Australia.

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SMSF Audit Checklist

SMSF Audit Self Managed Super Funds

Fund Name: (per trust deed)

_______________________________________________________

Fund ABN: _____________________________________________

Fund TFN: _____________________________________________

Year of Audit: _____________

The basic format is to have Financial Statements, a Tax Return, supporting

documentation and then the Trust Deed and Minutes ready for your SMSF. The

preference is if you email this to Audit Warehouse.

Divide your audit file in sections and add relevant documents in this file. See below for

the detail that should be in each section.

Information for the Tax Return:

 Fund auditor details entered on the annual return and regulatory return – Q6  Auditors Name: Mr. Johann Heinrich Preller

 Professional Body: 3  Membership Number: tba

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Main components of the Audit file

 Signed audit engagement letter by the Trustees

 Financial Statements

 Tax return completed (see auditor details below)

 Supporting documents for all items in the Financial Statement

 Trustee representation letter signed by the Trustees

 Current Investment strategy

 Proof of Trustees (individual – document signed by Trustee accepting to act as

Trustee or Company Trustee confirmation of Directors)

 Trust Deed signed

Section 1: Permanent File

 Copy of ATO Trustees declaration

 Copy of Fund minutes

 Bare Trust Documentation [If SMSF has borrowings]

 Copy of most recent Lease Agreements

 Copy of property Title Deeds

 Corporate Trustee Report

 Declaration of Trust for property investments

 Pension Documentation

 Investment Strategy

 Trust Deed

Section 2: Compliance Letters

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Section 3: Financial Statements

 Financial Statements

 Income Tax Return

 Investment Summary Report

 Members Statements

 Notes to financial statements



Statement of Taxable Income / Income Tax Provision

Section 4: Source Documents

 Actuarial Certificate [If Fund is in pension phase]

 ATO Portal Reports

 Bank Statements

 Buy / Sell Contracts

 Distribution Statements

 Dividend Statements

 Life Insurance Statements

 Managed Fund Holding Statements

 Rental Income and Expense supporting documentation



Share holding statements

Section 5: Client contact details

Primary Contact: (documents and queries will be forwarded to this person)

Name: _______________________________

Firm: _____________________________________

Contact number: ____________________

Email: ______________________________________

Postal Address:

_________________________________________________________________

Member 1: ______________________________

Member 2: _______________________________

Member 3: ______________________________

Member 4: _______________________________

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Name: ________________________________

Address: ______________________________________________________

Contact number: ________________________________

Section 6: Fund Administration

If YES to any of following questions, provide copies of relevant documentation

YES / NO – Change of Trustee?

YES / NO – Members added / resigned? YES / NO – Trust Deed upgraded?

YES / NO – Amended Investment strategy?

YES / NO – Change in tax status? i.e.: member moved from accumulation to pension phase YES / NO – Any ATO correspondence received relating to any significant events occurred? YES / NO – New beneficiary nominations?

YES / NO – Prior period audit management letter points addressed?

YES / NO – Signed engagement letter and audit representation letters obtained?

YES / NO – Financial statements (including notes), member statements, trial balance, general ledger and journal entries included?

YES / NO – Working papers prepared and client supporting documentation included? YES / NA – Latest ASIC annual return included for Corporate Trustee

YES / NO / NA – Is Corporate Trustee a sole purpose SMSF Trustee? Confirmations

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Section 7: Fund Administration

(new engagements and first time audits to Harris Fraser audit

service)

Attach the following documentation

YES / NO – Fund Trust Deed?

YES / NO – Member applications and Trustee consents?

YES / NO – ATO trustee declarations (appointments after 1 July 2007)? YES / NO – Investment strategy?

YES / NO – Prior year’s financial statements including notes signed by the trustees? YES / NO – Signed prior year’s auditors report and management letter?

YES / NO – ATO correspondence received relating to a significant event? YES / NO – Beneficiary nominations?

YES / NO – General authority (should external verifications required for bank, employer or insurance company)?

YES / NO – Prior period audit management letter points addressed? YES / NO – Signed engagement letter and audit representation letters?

YES / NO – Financial statements (including notes), member statements, trial balance, general ledger and journal entries

YES / NO – Working papers and client supporting documentation included? YES / NA – Latest ASIC annual return attached (corporate entities only)? YES / NO / NA – Is corporate trustee a sole purpose SMSF Trustee? Confirmation

YES / NO – Minutes maintained for 10 years

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SECTION 8 - Client Supporting Documentation Checklist

Only complete this section if electronic upload files are not received

Cash at Bank / Cash on Deposit

1. Bank statements for full year (also post year end to September is

recommended)

2. Bank confirmation recommended for balances > 10% of asset value and/or

where originals not received

Shares in Listed and Unlisted Companies / Trusts

1. Dividend notices and trust distributions/annual tax statements

2. SRN/HIN details (including holding name and postcode)

3. Acquisition and disposal documentation

WRAP Investments

1. Annual Tax Statements and transaction reports

2. Annual portfolio / holding statement

3. Controls audit report to meet the requirements of GS007

Related Party Investments

1. Financial statements (property in related entities–also complete “property”

section)

2. Evidence of ownership

3. Market value calculations

Property

1. Title documents e.g. title search

2. Documentation to support value

3. Lease agreement, including details on lessee

4. Evidence of rental being at market rates

5. Insurance policy

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Other Assets (e.g.: artwork, jewelery, wine, sundry debtors, loans)

1. Documentation to support ownership

2. Documentation to support value

3. Lease / loan agreements, including details on lessee / recipient

4. Evidence of rental / interest being at market rates

5. Limited Recourse Borrowing Arrangements when appropriate

6. Details of asset location and insurance policy

7. Confirmation asset not for private use and/or enjoyment by members or related

parties

8. Acquisition and disposal documentation

Other Liabilities

1. Supporting documentation

2. Member benefit calculations

Income & Expenditure

1. Contributions - confirmation from employer, confirmation re work test met for

over 65, non concessional summary since 1 July 2007

2. Insurance – copy of policy confirming ownership, life insured, cover type and

premiums

3. Pension / benefit payments – condition of release (under 65), PAYG summary

(under 60)

4. Other income and expenses documentation

Tax

1. Annual return

2. Income tax and tax deferred calculation work papers

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Section 9: Declaration

To my best knowledge and belief all documents supplied, whether they are

photocopies or electronic, are true representation of the original documentation.

Signed:_________________________________________________________

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More Information

All SMSF’s are required to be audited by an approved SMSF auditor. This audit requirement is set out in law under section 35C of the Superannuation Industry Supervisory Act 1993. Harris Fraser has approved auditors to perform all auditing requirements pursuant to the Act, taking into account current developments.

First of all, if you are a client or prospective client of Harris Fraser (Australia) your audit fee and audit service is included in the fixed monthly fee you pay – so you can stop reading now… or continue reading as an FYI.

Audit check list

You can set up you own SMSF and also complete your own financial accounts and tax return. But you will need to have your SMSF audited – and this is where we come in.

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On a quarterly basis the ATO release statistics on SMSF’s. Attached is an example of the latest figures released showing almost 500,000 SMSF’s in existence.

In the table below is the latest data from the ATO. The data was extracted on 6 March 2012.

Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11

Establishments _8,486 _8,222 _7,424 _7,248 _9,305 _7,983

Windups _11,842 ₂₁₀ ₃₄₈ ₃₆₀ _1,520 ₉₂

Net establishments _-3,356 _8,012 _7,076 _6,888 _7,785 _7,891

Total number of SMSFs _412,846 _420,858 _427,934 _434,822 _442,607 _450,498

Total members of SMSFs 777,347 794,599 807,231 819,524 833,307 850,643

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Expenses in a SMSF

A SMSF will have to pay certain expenses to keep on running the Fund for the purpose of providing for the Members’ retirement benefit. Normal operating expenses will be a tax deduction in the SMSF, but remember Trustees can’t be remunerated for their services as Trustees.

An expense that has a ‘private element’ in it cannot be claimed as tax deductible expense, for example if a computer was bought and used both for private and SMSF use, the expense can’t be claimed. You cannot apportion it because the SMSF is not a ‘business’.

Also remember where a Member is in pension mode the portion of the expense towards earning this ‘exempt income’ is not deductible. The apportionment formula is defined in the ruling. When at least one member of a SMSF has an account in the accumulation (tax paying) phase, it is important for SMSF trustees to be aware of which expenses of the fund are tax deductible, and which are not.

The General Principle

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Taxation Ruling on Specific SMSF Expenditure

The ATO issued a taxation ruling TR 93/17 setting out a list of expenses that are tax deductible to a SMSF, as follows:

 actuarial costs;  accountancy fees;  audit fees;

 costs of complying with Government regulations;

 costs in connection with the calculation and payment of benefits to Members (but not the cost of the benefit itself);

 investment adviser fees and costs in providing pre-retirement services to members;  other administrative costs incurred in managing the Fund;

 the SMSF’s annual lodgment fee, however a late lodgment penalty is not deductible;  legal expenses, although this usually depends on whether the expenses are of a capital or

revenue nature;

Other expenses in a SMSF can include:

 life insurance premiums;

 total and permanent disability insurance premiums;

 partial deduction for total and permanent disability premiums;  investment research subscriptions; and

 costs for amending a trust deed are deductible if the amendments are needed due to changes in Government regulations, and are made to ensure that the fund’s day to day operations continue to satisfy its compliance obligations.

What is not deductible?

 upfront fees incurred in investing money are of a capital nature and are not deductible;

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Apportionment

Expenses incurred in gaining or producing exempt income only (pension income) is not deductible. If the SMSF has accumulation and a pension account within the SMSF, expenses incurred partly in producing assessable income and partly in gaining exempt income must be apportioned.

SMSF Year End Requirements

The financial year for a SMSF is the same as for individuals, i.e. 30 June. We will prepare the SMSF annual compliance functions.

As the Trustee responsible for the Fund, you need to supply our accounting service with the information to prepare the financial accounts and tax return. Please email all supporting documents to us. For each type of investment, send us the balances at 30 June and transactions for the year. This is explained below:

 Bank Accounts

 Excel or CSV download of your bank account for the year, noting transaction types;

 Bank statement at 30 June showing the name of the Fund and the balance of the bank account foreach bank account

 Roll-overs into the Fund, send us a statement

 For contributions into the Fund, note which member this relates to.

 For roll overs from other funds into the SMSF, please send a copy of the Benefit Rollover Statement setting out the tax components of the roll over.

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Property

For property investment, you will receive a summary from the real estate agent showing rentals received, the real estate agent fee and expenses for repairs and maintenance.

Remember to send us copies of all your permanent documents, if you have not done so already.

1. Trust Deed

2. Minutes of Meetings 3. Investment Strategy 4. Trustee Declaration

5. Consent to act as Trustee and Member Application

When do we need this?

The ATO is the regulator of SMSF and the annual return is due to the ATO on either 28 Feb for new funds (8 months after the year end) or 15 May for the 2nd and subsequent years (this is 10.5 months).

Please try and send all files in Excel or CSV format, or your adviser will download them from your investment platform. This will save us processing time. Where there’s excessive data entry (also referred to as a shoe-box audit) we will have to charge an account entering and processing fee. You can use a system to enter all the data yourself.

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What does it cost?

SMSF set-up with individual Trustees, including Trust documents = $799 (Existing SMSF take-on = $599 once-off fee)

Other paperwork prepared for you, if you choose:

Bank Accounts, chosen by you = $59 each

Investment Platform, chosen by you = $59 each

Monthly charge, any provider and investment option, including accounting and audit = $149 per month, indexed to inflation.

What is included?

As part of the SMSF setup process, Harris Fraser will apply for an ABN and a TFN. On an annual basis, we prepare your financial statements, take care of your SMSF tax return, and arrange your SMSF audit. All these functions are covered by your fixed monthly fee.

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Corporate costs

Annual Fee for a Bare Trust and Corporate Trustee = $1,000

Corporate Trustee set-up = $1,450 once-off fee

Bare Trust set-up when borrowing for investment property = $1,500 once-off fee

Other fees

Fee payable to ASIC for a Corporate Trustee = $41 annually

Super Levy Surcharge payable to the ATO = $200 for 2012 (was $180 in 2011) Actuarial Certificate = $280

Tailor-made fees

Set-up only (i.e. you handle your own accounting and tax) – $799 To close down a SMSF = $450

Consulting fees = $200 per hour, while phone support and email is free.

Audit only (i.e. you handle your own accounting & tax) = $699

Note on fees

Fees are payable quarterly in advance. All fees include GST. There are no exit or penalty fees if you decide that you no longer want Harris Fraser to take care of your SMSF.

Administration fees cover the annual preparation of accounts, tax return and audit (we appoint and pay the auditor). This is all you need to run your SMSF. The only possible additional expenses are such things as bank and brokerage fees.

If your SMSF is set up on the 12th of the month, we will set up a debit order be deducted from the SMSF bank account on the 1st_{day of the next month, for the quarter.}_{And, don’t worry, we perfectly}

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What do we expect from you?

 When contributing to your SMSF, make sure you keep track of how much each member contributes.

 Supply us with all your accounting information at the end of the financial year in Excel format (.xls) or similar, e.g. a CSV file. Harris Fraser will use this information to prepare your financial accounts, calculate member benefits, work out the tax to be paid by the Fund, and, finally, submit the tax return.

 Additional information can be sent to us as a scan(s) via email.

 We prefer soft copy files because it minimises the need to re-key the data where there are high volumes. When there are only a few transactions a year, working with paper copies makes little difference. However, when there are copious pages of transactions, soft copy formats allow us to work much more efficiently.

As a complete administration service, we will supply you with the following documents for your SMSF at the end of the financial year: Financial Statements, Member Benefit Statements, Tax Calculation and a Tax Return as well as Trustee Minutes for the year.

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Set-up costs tax deductibility

Q: Can the set-up cost of a corporate trustee be deducted in an SMSF

A: No, we capitalise this cost

Can it be amortised over 5 years?: The 5-year deduction is only available if “running a business”. Best practice for SMSF is to include as expense in accounts then adjust (add back) in tax return as a tax deduction is not available to the Fund.