• Reporting criteria

    The following tests set out what contraventions you must report to us.

    Work through each test and, where applicable, report the sections and regulations listed in table 1.

    You are required to comply with prescribed auditing and assurance standards at all times.

    Test 1: Fund definition test

    Flowchart of Test 1: Fund definition test

    Failing to meet the definition of an SMSF can result in a contravention of the SISA which may result in the fund losing its complying status. You should report this to us because, as the regulator of these funds, we may be able to assist the trustees in avoiding serious consequences if they want their fund to remain a complying SMSF.

    Test 2: New fund test

    Flowchart of Test 2: New fund test

    The 15 months is measured from the establishment date of the fund. A fund is generally established on the date it first holds any assets.

    Test 3: Trustee behaviour test

    Flowchart of Test 3: Trustee behaviour test

    You must report a contravention where the trustees have previously received advice of a contravention and, after receiving this advice, they breached the same section or regulation even if it does not meet the reporting threshold test. For example, you may establish that the trustees received advice of a contravention previously from reviewing the fund's prior-year working papers.

    Test 4: Trustee behaviour test

    Flowchart of Test 4: Trustee behaviour test

    You may be able to check this from viewing prior-year audit documents.

    Where there is an event that contravenes a section only at the time it occurs (for example, a section 66 contravention), but it remains unrectified in following years, it should continue to be reported under test 4. Even though the contravention does not actually occur in the following years, it should be reported under the section that was originally contravened.

    Test 5: Trustee behaviour test

    Flowchart of Test 5: Trustee behaviour test

    *'Statutory time period' refers to periods prescribed in the SISA and SISR.

    The reportable sections and regulations that have a statutory time period are listed in table 1.

    Test 6: Financial threshold test

    Flowchart of Test 6: Financial threshold test

    Example

    An SMSF has $250,000 in total assets, including an asset acquired through a related party for $25,000. This acquisition contravened section 66 because the asset was not one of the exceptions from the general prohibition on acquiring assets from a related party. The value of the contravention is 10% of the value of the fund’s total assets. The contravention must be reported because it is greater than 5% of the fund's total assets.

    End of example

    In relation to test 6, if section 83 in-house assets – prohibition on further acquisition – is contravened, then the contravention value is the amount over the statutory 5% limit. For example, if the market value ratio of a fund's in-house assets is 7%, then the contravention value is 2% of the fund's assets (7% minus 5% limit), so the contravention value is not greater than 5% of the value of the fund's total assets.

    Test 7: Financial threshold test

    Flowchart of Test 7: Financial threshold test

    Professional judgment

    We encourage you to report contraventions and other information that you think will help us perform our function as the regulator of SMSFs. To decide if you should report contraventions and other important facts, even if they do not meet any of the tests, you should apply both of the following:

    • the auditing and assurance standards
    • your professional judgment.

    How do you complete the report?

    Section A: Report information

    Question 1

    This report applies to the financial year ending 30 June

    Provide the financial year of the audit that the report applies to.

    Each report relates to the specified financial year only – if you are conducting audits of more than one financial year, report the contraventions you identify during the audit of each financial year in a separate report.

    Question 2

    This report is new or revised

    Place X in one applicable box only.

    A report is either:

    • new – if it is the first time you are lodging a report for the events
    • revised – if it is lodged to correct or change information previously reported on a new report or earlier revised report.

    To revise a previously lodged report, you must re-report all the information (not just the items you want to revise).

    The revised report replaces the previous report.

    Section B: Fund information

    Question 3

    Name of self-managed superannuation fund (SMSF)

    Provide the full name of the SMSF as it appears on the fund’s trust deed.

    Question 4

    Australian business number (ABN) and/or tax file number (TFN)

    Provide the SMSF’s ABN and/or TFN. You must also provide these details at the top of page 3 on the form.

    We are authorised by the Taxation Administration Act 1953 to request the provision of tax file numbers (TFNs). We will use the TFN to identify the entity in our records. It is not an offence not to provide the TFN.

    Taxation law authorises us to collect information and disclose it to other government agencies.

    Question 5

    What was the value of the fund’s total assets at the end of the year of audit?

    Provide the value of the SMSF’s total assets as shown in their financial statements at the end of the financial year of audit.

    Use whole dollars only.

    Section C: Audit firm information

    Question 6

    Auditing firm details

    Provide:

    • the name and ABN of the firm you work for
    • your own ABN if you are a sole practitioner.

    Section D: Auditor information

    Question 7

    Auditor's details

    Provide your details as the auditor or actuary lodging the ACR.

    For your phone number, print the 10-digit phone number, including the area code, and leave no spaces.

    Make sure the address you provide is the most appropriate address to receive mail from us.

    Section E: Contraventions

    A contravention is either an:

    • action prohibited under the SISA and SISR
    • inaction that results in the trustee not meeting their obligations under the SISA and SISR.

    Only contraventions of the sections and regulations listed in table 1 should be reported here.

    If you are concerned about a contravention or continued contravention of a section or regulation that is not listed in table 1, you can report that information at Section G.

    An event is something that may lead, or has led, to one or more contraventions. If an event leads to a contravention of more than one section or regulation, you should list each contravention that relates to the event.

    Do not report unrelated contraventions as a single event.

    Example 1: An event leading to contravention of more than one section

    An SMSF borrows money that is used to purchase a home from a member (the loan is not a limited recourse borrowing arrangement and the home is not business real property).This event results in a number of contraventions of the SISA, including section 66 (acquisition of assets) and section 67 (borrowing). The auditor reports this as one event, and lists each contravention on the form for that event.

    End of example

    We rely on complete reporting from SMSF auditors to understand fund compliance year to year. Complete reporting requires auditors to report contraventions in the year they occur and in all following years that the contravention remains unrectified. This includes where the auditor is aware that we have advised the trustees that we would take no further action, at that time, in relation to the contravention. While no further action may be appropriate in one year, if we receive information that a contravention remains unrectified in following years, we may choose to take a different compliance approach with that fund.

    Example 2: An existing contravention that was previously reported and can be rectified, but has not been

    Roger is an SMSF auditor engaged to audit the McAlister SMSF. The McAlister SMSF has a single member and a corporate trustee, McAlister SMSF Pty Ltd. Roger identifies during the 2012–13 year audit that the bank account used by the fund is in the name of the member personally. Roger advises the trustee to correct the separation of assets contravention by arranging with the bank to have the name changed to, or a new account set up in the name of, McAlister SMSF Pty Ltd as trustee for the McAlister SMSF,

    During the 2013–14 year auditor Roger identifies that the fund has not made any arrangements to correct the bank account issue as the account is still in the member's name. This is a continuing contravention that has previously been reported, but can be rectified, so Roger is required to report the contravention again in the 2013–14 year.

    End of example

    We accept that some contraventions cannot actually be rectified. You should report these contraventions in the year they occur but not in subsequent years.

    Example 3: An existing contravention that was previously reported but cannot be rectified

    Gillian is the SMSF auditor for the Smith SMSF. In the 2011–12 year audit, Gillian identified that minutes of trustee meetings had not been kept. Gillian reported the section 103 contravention in the 2011–12 ACR. Since then the trustees have retained all minutes of meetings. Gillian is auditing the 2012–13 year. She knows there is a contravention of section 103 because, even though the trustees kept the minutes of meetings for 2012–13, they have not retained minutes of meetings for the last 10 years. Because this contravention cannot be rectified and it was previously reported in the 2011–12 ACR, it does not have to be reported again.

    End of example

    Question 8

    Did the event commence before the audit period?

    Place X in the applicable box.

    Question 9

    Start date of event

    Provide the date the event started.

    This may be in an earlier financial year than the one being audited. If the event started in an earlier financial year and you are unable to identify the start date, leave this blank.

    Example 4: Start date of event

    An SMSF borrowed money in an earlier financial year and the money has not been paid back, so the breach has not been rectified by the trustees. The auditor provides the date in the earlier financial year that the fund borrowed money.

    End of example

    Question 10

    Describe the event, including any mitigating factors.

    Provide details of the event, including any mitigating information that may help us work out what compliance action we should take.

    You can report up to six separate events on one ACR.

    Question 11

    Have all the contraventions been fully rectified or do the trustees have a plan to fully rectify all of them?

    Place X in the applicable box.

    Question 12

    What is the estimated completion date, or if fully rectified, when was this completed?

    Provide the final date the contraventions were fully rectified or the estimated rectification date.

    Leave this blank if you cannot estimate a date.

    Question 13

    Describe any steps taken to rectify the contraventions or any planned steps to rectify the contraventions.

    Provide details of the steps taken to rectify the contravention and any planned action to rectify the contravention. Include details of when it is expected the contraventions will be rectified.

    Question 14

    What sections/regulations have been, or may be, contravened?

    Provide the sections or regulations for the event. Copy each one exactly as it appears in table 1.

    For each event, you must enter at least one section or regulation – do not repeat the same section or regulation for any one event.

    Where the event results in, or may result in, more than one contravention, list each section or regulation on a separate line and complete the information required for questions 14 to 17.

    Report contraventions of sections and regulations not listed in table 1 at Section G.

    Table 1: List of reportable sections and regulations

    Section or regulation

    Section or regulation title

    Does a statutory time period apply?

    S17A

    SMSF definition

    No 

    S35C(2)

    Trustee to provide documents to the auditor

    Yes. Trustees must ensure that requested relevant documents are given to the auditor within 14 days of the request being made.

    S52(2)(d) or
    R4.09A (commenced 07/08/2012)

    Separation of assets

    No 

    S62

    Sole purpose test

    No 

    S65

    Lending or providing financial assistance to members or their relatives

    No 

    S66

    Acquisition of assets from related parties

    No 

    S67

    Borrowing by the fund

    Yes. For borrowing exceptions only. A temporary borrowing to pay beneficiaries or to make a super surcharge payment must not exceed 90 days.

    A temporary borrowing to cover settlement of securities transactions must not exceed seven days.

    S82

    In-house assets – exceeding in-house assets ratio

    Yes. Market value ratio for the 2000–01 year of income and later years of income. If it exceeds 5%, the trustee must prepare and carry out a written plan to reduce the market value ratio to 5% or less before the end of the following year of income.

    S83

    In-house assets – prohibition on further acquisition

    No 

    S84

    In-house asset rules must be complied with

    No 

    S85

    In-house assets – prohibition of avoidance schemes

    No 

    S103

    Minutes and records

    Yes. Trustees must retain minutes of all meetings and records of all decisions made for at least 10 years.

    S104A

    Trustee declaration

    Yes. A trustee declaration in the approved form must be signed within 21 days of becoming a trustee (or a director of a corporate trustee) of an SMSF.

    S109

    Investments to be maintained on an arm’s length basis

    No 

    S126K

    Disqualified persons not to be trustees

    Yes. Trustees must immediately tell us in writing if a trustee is or becomes a disqualified person.

    R4.09

    Investment strategy

    No 

    R5.08

    Minimum benefits

    No 

    R6.17

    Restriction on payment of benefits

    No 

    R7.04

    Acceptance of contributions

    Yes. Returning contributions to members within 30 days – for example, where no TFN is quoted.

    R8.02B

    (Assets to be valued at market value for the 2012–13 and later income years)

    Valuation of assets

    No

    R13.14

    Charges over assets of the fund

    No 

    R13.18AA

    (From 1 July 2016, all investments in collectables and personal use assets must comply with these rules, regardless of when they were acquired.)

    Investment in collectables and personal use assets

    Yes. Collectables and personal-use assets need to be insured within seven days of the date of acquisition by the SMSF.

    Question 15

    What is the maximum value of the contravention?

    Provide the maximum dollar amount of the contravention. Use whole dollars only.

    This question should only be left blank where contraventions with no monetary value are being reported (that is, section 17A, subsection 35C(2), section 62, section 85, section 103, section 104A, section 126K or regulation 4.09).

    Example 5: Maximum value of the contravention

    A fund contravenes section 65 by lending money to a member of the fund. The auditor reports the highest value of the loan (including unpaid interest) that was outstanding at any time during the year.

    End of example

    Question 16

    Has the contravention been fully rectified?

    Place X in the applicable box.

    Answer ‘Yes’ only if you have confirmed the contravention has been fully rectified.

    Answer ‘No’ if the contravention has not been fully rectified, even if it is in the process of being rectified.

    Example 6: Reporting rectified contraventions

    Mia is the auditor for the Connolly SMSF. She identified that during the 2012–13 year, the Connolly SMSF had loaned money to a member. At the time Mia conducted the audit, the loan had been repaid in full with interest.

    As the contravention met a reporting test, Mia reports the loan in a 2012–13 ACR as fully rectified.

    End of example

    Question 17

    What is the outstanding value to be rectified (last known)?

    Provide the outstanding value to be rectified if you have answered ‘No’ to question 16. Use whole dollars only.

    This question should only be left blank where contraventions with no monetary value are being reported (that is, section 17A, subsection 35C(2), section 62, section 85, section 103, section 104A, section 126K or regulation 4.09).

    Example 7: Outstanding value to be rectified

    A fund lent $200,000 to a fund member; the member repaid $150,000, plus interest. The auditor reports that the outstanding value to be rectified is $50,000, plus any unpaid interest.

    Example 8: Applying the reporting tests

    Leon established an SMSF in 2009. He also operates a small business as a sole trader.

    Sian audits Leon’s SMSF for the 2011–12 year in November 2012 and identifies the following.

    • On 16 June 2012, Leon borrowed $10,000 from his SMSF’s bank account to pay his business creditors. Leon thought it was allowable because the fund wasn’t using the money and he drafted a loan agreement. He gave no thought to paying interest for the loan. 
    • The fund has $320,000 in assets (rental unit $300,000, cash $10,000, loan $10,000).

    Sian identifies the following contraventions.

    • A loan of $10,000, contravening section 65 – lending or providing financial assistance to members or their relatives.
    • Financial assistance of $458 (calculated using reasonable market rates from the date the money is taken out until the date of repayment) for failing to account for interest, contravening section 65 – lending or providing financial assistance to members or their relatives.
    • The investment is not at arm’s length because interest was not considered for the loan, contravening section 109 – investments to be maintained on an arm’s-length basis. 

    Sian tells Leon of the issues and explains the contraventions must be rectified by repaying the $10,000, plus interest. Leon assures Sian he will do this by the end of December 2012. This is the first time Leon has contravened the SISA and SISR.

    Sian uses the following tests to decide whether she should report the contravention.

    End of example

    Test 1 – Did the fund fail to meet the definition of an SMSF?

    No.

    Test 2 – As at the end of the financial year, is the SMSF less than 15 months old and did the value of any single contravention of a section or regulation listed in table 1 exceed $2,000?

    No. Leon established his SMSF in 2009, so it is older than 15 months.

    Test 3 – Have the trustees previously received advice of a contravention that they have breached again?

    No.

    Test 4 – Is there an identified contravention from a previous year that has not been rectified at the time this audit is being conducted?

    No.

    Test 5 – Did the trustees fail to meet a statutory time period by more than 14 days?

    Not applicable – there is no specified time period for these contraventions.

    Test 6 – Was the total value of all contraventions greater than 5% of the value of the fund’s total assets?

    The contravention value is calculated as follows:

    Section 65 – $10,000 loan, plus interest amount $458

    $10,458

    Section 109 – interest

    $458

    Maximum value of all contraventions

    $10,916

    The percentage value of the contraventions is $10,916 ÷ $320,000 = 3.41% (less than 5% threshold).

    In this example, there was only one event. If there was more than one event, you add the values of each event to give the total percentage of the contraventions.

    Test 7 – Was the total value of all contraventions greater than $30,000?

    The contravention total value is $10,916, which is less than $30,000.

    In this example there was only one event. If there was more than one event, you add the values of each event to calculate the total value of the contraventions.

    As none of the reporting criteria were met, Sian is not required to report this contravention. She applies the Auditing and assurance standards and her professional judgment and decides not to report the contravention because Leon has assured her the contravention will be rectified by the end of December 2012. However, she qualifies the Independent auditor's report and details the contraventions and the required rectification actions in the management letter she provides to Leon at the completion of the audit.

    Example 9: Completing section E of the report

    During the next audit, for the 2012–13 year, Sian finds that Leon has not repaid the $10,000. Interest is calculated at $1,458 (calculated using reasonable market rates from the date the money is taken out until the date of repayment). She does not identify any other contraventions.

    Sian applies the tests to decide whether she should report the contravention.

    End of example

    Test 1 – Did the fund fail to meet the definition of an SMSF?

    No.

    Test 2 – As at the end of the financial year, is the SMSF less than 15 months old and did the value of any single contravention of a section or regulation listed in table 1 exceed $2,000?

    No. Leon established his SMSF in 2009, so it is older than 15 months.

    Test 3 – Have the trustees previously received advice of a contravention that they have breached again?

    No. Sian did not identify any repeated contraventions previously advised to the trustees.

    Test 4 – Is there an identified contravention from a previous year that has not been rectified at the time this audit is being conducted?

    Yes. Leon had been advised of the breach by the auditor in the previous year and had not taken any steps to repay the loan.

    • Leon failed to repay the $10,000 he borrowed during the previous year, contravening section 65 – lending or providing financial assistance to members.
    • Leon failed to pay interest on the borrowing, contravening section 65 – lending or providing financial assistance to members.
    • Leon failed to take steps to recover the outstanding interest on the borrowing, contravening section 109 – investments to be maintained on an arm’s-length basis.

    Each of these contraventions must be reported.

    Because all the contraventions identified meet reporting test 4, Sian does not need to apply the remaining tests – she must report all the contraventions.

    Sian completes Section E of the contravention report as shown below.

    Section E: Page 1

    Example 10: Completing section E of the report for multiple events

    During the 2013–14 financial year audit conducted at the end of November, Sian finds:

    • Leon had repaid the $10,000 plus interest as previously agreed
    • on 27 January 2014, Leon borrowed $5,000 from the fund to pay a business bill, again with the intention to repay the money to the fund
    • Leon used a residential unit the fund owned for three weeks over the Christmas period (25 December 2013–14 January 2014) and paid a commercial rental amount to the fund in advance
    • the fund has $420,000 in assets (rental unit $400,000, cash $15,000, loan $5,000).

    Sian had also made a written request on 16 September 2014 for some bank statements. Leon took two months to provide the documents.

    Sian identifies the following contraventions.

    • A loan of $5,000, contravening section 65 – lending or providing financial assistance to members or their relatives.
    • Financial assistance of $416 (calculated using reasonable market rates from the date the money is taken out until the estimated date of repayment) for failing to account for interest, contravening section 65 – lending or providing financial assistance to members or their relatives.
    • The investment is not at arm’s length because interest was not considered for the loan, contravening section 109 – investments to be maintained on an arm’s length basis.
    • Use of the rental unit causes it to become an in-house asset, taking the in-house asset ratio above 5%, contravening section 83 – in-house asset – prohibition on further acquisition.
    • Trustee failed to take reasonable steps to ensure the in-house asset provisions were complied with, contravening section 84 – in-house assets – reasonable steps.
    • Failing to provide requested bank statement within 14 days, contravening subsection 35C(2) – trustee to provide documents to the auditor.

    Sian tells Leon of the contraventions and explains that he has to repay the $5,000, plus interest. Leon immediately repays $2,000 and the outstanding interest of $416 (calculated using reasonable market rates from the date the money is taken out until the date of repayment) but requires more time to repay the remaining amount. Leon decides to sell a business asset to obtain funds to repay the remaining $3,000. Settlement is due to take place in mid-January 2015. Sian calculates the interest for this period as $37.

    Sian uses the following tests to decide whether she should report the contraventions.

    End of example

    Test 1 – Did the fund fail to meet the definition of an SMSF?

    No.

    Test 2 – As at the end of the financial year, is the SMSF less than 15 months old and did the value of any single contravention of a section or regulation listed in table 1 exceed $2,000?

    No. Leon established his SMSF in 2009, so it is older than 15 months.

    Test 3 – Have the trustees previously received advice of a contravention that they have breached again?

    Yes. The same contravention occurred in the previous two years and the auditor advised Leon.

    This must be reported.

    • Failing to account for interest (section 65 – financial assistance): The same contravention occurred in the previous two years. The contravention value to be reported is $5,453 (loan of $5,000 plus interest paid $416 plus interest payable $37).
    • Failing to account for interest (section 109 – non-arm’s length): The same contravention occurred in the previous two years. The contravention value to be reported is $453 (interest paid $416 plus interest payable $37).

    Test 4 – Is there an identified contravention from a previous year that has not been rectified at the time this audit is being conducted?

    No.

    Test 5 – Did the trustees fail to meet a statutory time period by more than 14 days?

    Yes. Failure to provide documents – subsection 35C(2) – trustee to provide documents to the auditor.

    Test 6 – Was the total value of all contraventions greater than 5% of the value of the fund’s total assets?

    Yes. Use of rental unit causes it to become an in-house asset, contravening section 83 in-house assets – prohibition on further acquisition.

    • The market value of the rental unit is $400,000.
    • The in-house ratio is calculated at 95.23% ($400,000 ÷ $420,000) which is over the statutory 5% limit.
    • The allowable in-house assets amount is $21,000 (5% × $420,000).
    • The maximum value of the contravention is $379,000 ($400,000 – $21,000).

    The total value of all contraventions is calculated as follows.

    Section 65 – lending or providing financial assistance to members

    $5,453

    Section 109 – investments to be maintained at an arm’s length basis

    $453

    Section 83 – in-house assets – prohibition on further acquisition

    $379,000

    Section 84 – in-house assets – reasonable steps

    $379,000

    Total value of all contraventions

    $763,906

    As the total value of all contraventions is greater than 5% of the value of the fund’s total assets ($763,906 ÷ $420,000 = 181.8%), all identified contraventions must be reported – Sian does not need to apply test 7.

    Sian completes Section E of the contravention report as shown below.

    Section E: Page 2
    Section E: Page 3

    Section E: Page 4
    Section F: Financial position

    Question 18

    While performing your duties, did you form the opinion that the SMSF’s financial position is, or may become, unsatisfactory?

    Place X in the applicable box.

    If you answer ‘Yes’, explain why you formed that opinion.

    Where possible, clarify if the unsatisfactory position is due to a regulatory breach or other circumstances.

    If the unsatisfactory position is due to breaches of the sections and regulations listed in table 1, you need to assess if these should be reported at Section E: Contraventions.

    Section G: Other regulatory information

    Question 19

    Do you want to report any other concerns, in addition to the events and contraventions you have already reported about either the fund or the trustees?

    Place X in the applicable box.

    Answer ‘Yes’ if you want to provide more information. If you answer ‘Yes’, explain why you formed that opinion.

    • Do not use this section if you have no compliance issues or other relevant issues of concern to report.
    • Information related to an event or contravention listed in table 1 must be reported at Section E: Contraventions. This information should not be included here.

    Examples of things you may consider reporting in Section G include:

    • repeated contraventions of non-reportable sections or regulations
    • questionable conduct of trustee/tax agent/administrator during engagement, such as undue pressure or influence to provide an unqualified audit report
    • concerns you have resulting from a trustee failing to cooperate with you or terminating your engagement
    • questionable conduct of a previous SMSF auditor, including where previous contraventions were not identified
    • If you are providing information about breaches of the sections and regulations listed in table 1, you need to assess if these should be reported at Section E: Contraventions.

    Section H: Auditor/actuary declaration

    Provide your SMSF auditor number (SAN).

    Your SAN is provided by the Australian Securities & Investments Commission (ASIC) when you become a registered SMSF auditor.

    SMSF auditors must be registered with ASIC to be able to conduct audits of SMSFs and provide their SAN on any audit documents.

    Last modified: 14 Jun 2016QC 17603