Asset values and pensions all at sea

Background

Robert R, an adviser, came to Super Plus in October 2010 with a long standing SMSF client who had an outstanding tax return for the 2009 year and the 2010 year return was due on 31 October 2010. The 2008 year return had been lodged late, and the adviser was not confident that the previous administrator had correctly dealt with new pensions that had commenced on 1 July 2008. He was also concerned that fund transactions such as contributions and pension payments occurring during the 2009 and 2010 years had not been monitored closely, and whether the correct minimum pension had been drawn during those years. He noted that numerous unit trust transactions had been conducted through the super fund bank account during the 2009 year, and to a lesser extent in the 2010 year.

The adviser asked Super Plus to identify any compliance issues that the fund had, and then process the 2009 and 2010 transactions to enable lodgement of the outstanding returns.

Super Plus Review

We reviewed the 2008 financial statements and member statements and the other fund documents provided. It was noted that two members commenced pensions on 1 July 2008, however, no pension commencement documents or minutes had been prepared by the previous administrator to confirm the details of the pension.

We noted that the fund’s related unit trust investment had not been valued on 30 June 2008, based on the valuation of assets held by the unit trust (including a property).

We found that the fund’s income tax account had not been reconciled as at 30 June 2008. The fund’s tax account had numerous transactions due to a history of small payments to the ATO, GIC charges and refunds, and amendments to prior year returns.

During the 2009 year there were an excessive number of deposits to and withdrawals from the fund’s bank account that required clarification and reconciliation. To a lesser extent, the 2010 year also had a number of unidentified transactions.

Super Plus Actions

  1. A market appraisal of the unit trust’s property was obtained in order to calculate the value of the related unit trust units held by the fund as at 30 June 2008, also the unidentified transactions clarifies. Using this information we were able to determine the pension purchase price for each pension and the calculation of the minimum pensions for the 2009, 2010 and 2011 years.
  2. The 2008 financial statements were amended to reflect the value of the related unit trust. There was no change to the tax position of the Fund.
  3. Pension commencement documents and minutes were prepared by Super Plus, and signed by the trustees to confirm the pension terms and tax components.
  4. With the unit trust property being a residential property, we requested that a copy of any residential tenancy agreements be provided to ensure the property was not being leased to a related party of the fund.
  5. Contributions for the 2009 and 2010 years were reconciled and confirmed with the trustees’ accountant. We checked that contribution regulations were not breached and contribution levels were within the members’ relevant caps.
  6. Pension payments were identified for the 2009 and 2010, and it was noted that minimum pensions were not paid during the 2010 financial year. This meant that the fund was not able to claim any exempt pension income for the 2010 year.
  7. We identified unit trust income was incorrectly deposited to the fund’s bank account during the 2009 year, and for part of the 2010 year, and unit trust expenses that were incorrectly paid from the super fund bank account during the 2009 year. This was brought to the trustees’ attention and rectified.
  8. All share holdings and dividend receipts were confirmed, and non super fund dividends deposited to the fund’s bank account were identified, rectified and steps were taken to ensure this doesn’t happen in the future.
  9. The fund’s income tax account was reconciled for the period to 30 June 2010, with the correct liabilities being calculated, and adjustments were made where necessary.

Results

By December 2011 the fund’s outstanding 2009 and 2010 tax returns had been lodged and the 2011 year return was completed and lodged before the due date.

Since then the fund’s transactions have been processed on a regular basis and any concerns are raised and dealt with on a timely basis.

The trustees’ management of the fund had been remiss due to illness and as a result of severe flooding in their business premises. They are now relieved and happy that their fund is being monitored on a regular basis, and Robert, the adviser, is able to advise the trustees knowing that fund is compliant and that information relating to the fund is current.

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