SMSF MINUTES

There is a lot of confusion amongst the SMSF advisers about the minute taking procedures for SMSF trustees.

Section 103 of the SIS Act requires trustees to keep minutes of meetings.

So yes, if the trustees had a meeting then they have a duty to keep and retain minutes. However, in practice most SMSFs rarely, if ever have meetings, and for good reason.

What typically happens is that some advisers draft minutes for an alleged meeting which did not in fact occur and ask trustees to sign them.

I recently encountered a file where an auditor (notably not CPA or Chartered ) issued a contravention report and qualified his audit report on the basis that ".. fund was in breach of section 35C(2) of the SIS Act…’ (i.e. failure to provide documents to the auditor) ‘…for not keeping minutes that documented every investment purchase and sale."

This audit report qualification had severe ramifications for the SMSF fund which was in the process of negotiating a line of credit to purchase an investment. The lenders baulked when they saw the report was qualified and refused the loan. The SMSF was pushed into contractual default and required to pay damages. Further the trustees suffered a loss due to the missed investment opportunity. The auditor does not have a duty tell SMSF trustees when and when not to invest. Wise advisors are careful not to interfere with day to day running of operations.

So the question is, should trustees prepare minutes about every investment? My answer is very simple. No. The trustee has complete discretion to make investment decisions. In fact, that is their duty and their job. In answer to the question, if minutes are not required in the day to day operations then when should trustees prepare minutes? Many clients have thanked me for assisting them to hold valid meetings with proper minutes. Where there is a significant legal consequence or liability that may arise if a meeting is not held then the trustees should have a meeting. If they do have a meeting, they are required to keep minutes. In answer to the question, What is that situation? The laws are so complex and intertwined that nobody can provide a definitive list of all the laws, taxes and situations that justify the calling of a meeting of trustees. Further these situations require careful examination and judgement. I suggest that SMSF trustees seek professional advice if they become aware that such a situation may have arisen.

Unless a meeting of trustees was convened there is absolutely no duty prepare any minutes. Further, by demanding that the trustees prepare false minutes the auditor in this case was leaving themself open to accusations that they are part of a conspiracy to falsify trust meetings or worse still they comprise a conspiracy to produce false minutes.

Left to their own devices most mum and dad trustees make a mess of the minutes that they produce without recourse to professional advice. They usually cannot tell the difference between ‘tax free’ ‘ untaxed’ ‘no tax’ ‘tax exempt’ ‘non-exempt’ ‘non assessable (The possibilities are endless refer to my Taxed-I-am article on this page) By using inaccurate terminology the trustees may leave themselves open to adverse tax assessments and disputes.

Who has time, money and energy to deal with nonsense? There are the costs of responding to nonsensical requests, the costs of hiring professionals to deal with nonsense correspondence, the possibility that legitimate risk findings go unreported, the costs of unnecessary tax audits, legal costs and sense of anxiety from not knowing where the solid ground is. The ultimate fund available to retirees may be diminished as a result of the nonsense.

Minutes can have far reaching and costly ramifications. They are a serious legal document. Trustees should seek advice from professional advisors before carelessly preparing them.

I asked the auditor why he made this ridiculous qualification. He said he had heard that many SMSF auditors have been sued and he thought that if he qualified on this basis he would avoid being sued. The reason SMSF auditors and other auditors had judgements against them are set out in the reasons for decisions from the respective courts. If you read these reasons you are likely to find a clear and foreseeable justification based on a neglected auditor duty. All that advisors have to do is their duty. Three is no duty to make frivolous qualifications.

There are numerous laws and situations that may arise where it is prudent and financially beneficial for trustees to hold a meeting and keep minutes. In order to obtain these benefits then these meeting must be properly convened.

The law is complex. Too many people have chosen their advisors based on price alone. If the SMSF advisory team is not anchored with an accredited CPA or CA licensed advisor, then the savings may be illusory.

Call Haydn Growden CPA 0411860494 for your SMSF advisory and audit needs.

SMSF.PLACE and AUDITORONLINE are CPA practices.