Financial advisers and trustees of self-managed superannuation funds (SMSFs) need to be wary of having an auditor contravention report (ACR) lodged with the Australian Taxation Office (ATO) as the consequences could be dire, according to a lawyer specialising in the sector.
"We have had a number of clients who got right in a pickle unnecessarily as a result of an ACR," DBA Lawyers managing director Daniel Butler said.
In many of those cases the trustees were not sure if there was a legitmate breach and why an ACR was needed, but as a result of the report found their funds deemed non-complying by the ATO, he said.
"It's amazing what the ATO picks up from auditor contravention reports and a lot of auditors are very trigger happy to lodge one."
However, Butler warned the process might have adverse outcomes for financial advisers if funds are deemed non-complying.
"Consequences flowing from that include the client taking a retrograde action against the adviser for lodging the ACR," he said.
The ATO has issued guidelines over when an ACR is required to be lodged and includes incidents such as breaches of the sole purpose test, exceeding the in-house asset limit and acquisitions from related parties.
If an ACR does need to be lodged trustees should ensure certain steps are taken before it happens, Butler said.
"Fix every contravention before the ACR is lodged. There are times when you rectify the breaches where you may not have to report," he said.
"If you can absolutely not fix the contravention, submit an enforceable undertaking to say you are going to be very nice but keep some very tight timeframes within which the contravention will be fixed."
