I am auditing a fund that has an investment in a related unit trust that has overpaid the SMSF's 2021 distribution. I believe this is deemed to be a loan by the unit trust to the SMSF by the ATO and is a breach of r.13.22B(2). It is a very small amount - $100.
Any and all advice accepted.
Hi David
The SIS regulations states that the assets of an ungeared unit trust (or company) cannot include:
"a loan to another entity, unless the loan is a deposit with an authorised deposit-taking institution within the meaning of the Banking Act 1959"
My view is that an overpaid distribution by $100 would not normally be considered to be a "loan to another entity".
A "loan" is defined in SIS as being:
""loan" includes the provision of credit or any other form of financial accommodation, whether or not enforceable, or intended to be enforceable, by legal proceedings."
The issue may come down to how you define a "loan" and also how the amount is disclosed in the financial statements of the Fund and the Unit Trust.
If other auditors have a view it would be great to hear their views.
Thanks
SMSF AAA