What Is SMSF Contravention Testing For Participants

If your self managed super fund is going to earn participants like yourself any money, it must be managed properly. You need an auditor who knows how to report everything related to your fund using appropriate tests, or the fund could lose its status.

What Is SMSF Contravention?

When you hear the term contravention think of it as a type of action performed by participants or trustees of the fund. These actions are known as “events” according to the Australian tax authorities.

Events include actions like loaning participants money through the fund, or dividing any assets in a particular manner. Events are actions that are changes directly related to the SMSF itself. Your auditor understands that reporting these actions precisely is essential, and the way he or she will go about doing this for tax purposes is by applying certain tests.

What Is SMSF Contravention Testing Like?

Tests are not things your auditor takes for the tax authority and must pass. What the auditor does is review the SMSF for a particular tax year and applies the facts that determine where the contraventions fall. In order to apply the facts regarding the contravention actions, he or she applies various criteria as set forth by the tax authority in the form of “tests.”

Some contraventions or actions that are unique to the SMSF for a tax year do not need to be reported. There are also tests that will indicate to the auditor if this is the case for any actions that occur within your fund. This allows the auditor to know when to disregard any action for reporting purposes.

The first test includes criteria that prove the fund is still acting as a self-managed super fund. If this were the case, then the auditor would go on to see if the fund checks out with the remaining tests.

Do I Need To Know When The Fund Experiences A Contravention?

You yourself and any other fund participants do not need to know the precise details of what constitutes a contravention, but you should be familiar with some of them, especially if any one person needs to borrow money from the fund. Your auditor should be more than willing to answer any questions you have regarding actions that may affect your fund’s status. Finally, he or she is also most likely understanding of the fact that reporting requirements and tests change.