In its May 2018 Federal Budget, the Government announced that SMSFs could move to a 3 year audit cycle, if they were compliant and timely. The measure was to take effect from 1 July 2019.

On Friday 6 July 2018, the Government released a Consultation Paper regarding this measure, seeking feedback by 31 August 2018.

The Consultation Paper is on the Treasury website and sets out the proposed design of the measure as follows:

Eligibility criteria

The number of SMSFs eligible for the three yearly audit cycle will vary, depending on the design of eligibility criteria.

Eligibility for the measure will be limited in two ways:

  • Good recording keeping and compliance: SMSFs will have to meet eligibility criteria of timely submission of Annual Returns and three consecutive years of clear audit reports to move from an annual audit cycle to a three-yearly audit cycle; and
  • Key events: A SMSF on a three-yearly audit cycle will be audited in every year in which a key event occurs, with such audits covering all years since the previous audit.

SMSFs that move to a three yearly audit cycle will be required to continue to submit the fund’s Annual Returns in a timely manner to remain on a three-yearly cycle.

It is proposed that eligibility for a three-yearly audit be based on self-assessment by SMSF trustees.

However, if:  (i) the ATO becomes aware that a SMSF trustee has incorrectly assessed their eligibility for a three-yearly audit cycle;  (ii) has failed to submit a Annual Return in a timely manner; or   (iii) has failed to procure an audit in a year of a key event – the ATO will notify the trustee that an audit is required and consider further action if necessary.

If a ‘key event’ occurs in years 1 or 2, then the SMSF will have to obtain an audit, before lodging its Annual Return for that year, and that audit will need to cover the whole period since the last one (maybe more than one year).

Some examples of possible key events include:

  • the commencement of a superannuation income stream by a member for the first time;
  • the death of a member;
  • the addition or removal of a member;
  • receipt of non-arm’s length income (NALI);
  • commencement or maintenance of a limited recourse borrowing arrangement (LRBA);
  • acquisition of an asset from a related party;
  • investments, loans or leases with a related party; or
  • in-species lump sum payments to a member.

Will this cut costs and ‘red tape’?

The Minister billed this as “reduc[ing] the compliance burden for funds that have a history of good behaviour and have relatively simple affairs.

But a number of auditors and advisers think these benefits could be illusory and even ‘problematic’ (see related TT Article). But their concerns seem to be:

  1. That 1 audit for a three-year period won’t be cheaper than 3 audits, each for a one-year period. I doubt that this will be so, and, in any event, that is one of the things Treasury is seeking feed back on.
  2. That trustees of funds might innocently ‘self-assess’ 3-year eligibility and then get into trouble. Again, my reading of the consultation paper, seemed to indicate that the SMSF would then have to get annual audits to fill in the gaps over the affected period, but how much trouble flowed was not discussed, and could be part of the design of the measure (and interested parties could make submissions about that).

FJM 16.7.18

[Treasury website: Consultation Page; Discussion Paper; Treasurer’s website: Media Release; LTN 128, 6/7/18; KPMG Daily Tax News, 9/7/18; Tax Month – July 2018]


Comprehension questions (answers available)

  1. Was the 3-year audit cycle, for compliant SMSFs a 2018 Budget announcement?
  2. Has Treasury put out a consultation paper seeking feed back on the basic proposal, by 31 August 2018?
  3. Will the key eligibility requirement be 3 years of ‘clear audit reports’ and timely lodgement of returns?
  4. Will the ATO advise when this eligibility requirement has been met?
  5. Are clear audit reports and timely lodgement of returns the only ways in which more frequent audits will be required?


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