I85PREP
⌘ K
SMSF Specialist Auditor (SSAud) Exam study materials
SMSF Specialist Auditor (SSAud) Exam study resources

SMSF Specialist Auditor (SSAud) Exam practice questions

One question at a time. Build your SMSF Specialist Auditor (SSAud) Exam understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1SMSF audit and compliance

Under the SIS Act, which standard best describes the audit conclusion an approved SMSF auditor must reach on the fund's financial statements before signing the audit report?

  1. Whether the financial statements give a true and fair view of the fund's financial position and its performance for the year Correct answer.
  2. Whether the fund's investment return exceeded the industry average for comparable funds
  3. Whether every member contribution was received within the same financial year it was allocated
  4. Whether the trustee has lodged the annual return before the audit is completed

Explanation

The auditor forms an opinion on whether the financial statements and notes are prepared in accordance with the SIS Act and give a true and fair view of the fund's financial position and performance. The audit is not a test of investment performance or of lodgment timing, and contribution allocation timing is a separate compliance matter rather than the financial statement opinion.

Question 2SMSF audit and compliance

An SMSF auditor identifies a contravention of the lending provisions of the SIS Act that has already been rectified before the audit report is signed. What is the auditor's most appropriate action?

  1. Consider the contravention, its rectification and materiality when deciding whether to report it to ASIC Correct answer.
  2. Report the contravention to ASIC immediately in every case regardless of materiality
  3. Disregard the matter if the trustee states it was unintentional
  4. Ignore the matter because rectification removes any reporting obligation

Explanation

Auditors must consider the nature, seriousness and rectification status of each contravention when deciding whether it is reportable to ASIC. Rectification is relevant but does not automatically extinguish a reporting obligation, and the auditor exercises judgement rather than applying a blanket rule.

Question 3SMSF audit and compliance

Which document primarily establishes the trustee's investment powers and any restrictions on them for an SMSF?

  1. The member's binding death benefit nomination
  2. The annual return lodged with the ATO
  3. The auditor's management letter
  4. The trust deed together with the fund's investment strategy Correct answer.

Explanation

Investment powers derive from the trust deed, and the trustee must also formulate and give effect to an investment strategy that complies with the SIS regulations. The annual return, management letter and death benefit nomination do not confer or restrict investment powers.

Question 4SMSF audit and compliance

An SMSF holds a residential property rented to a member's adult child at market rent. Which statement best reflects the compliance position?

  1. The arrangement breaches the in-house asset rules only if the child is a trustee
  2. The arrangement is prohibited because a related party of a member occupies the asset Correct answer.
  3. The arrangement is acceptable because market rent is charged and documented
  4. The arrangement is acceptable provided the lease is reviewed annually

Explanation

Acquiring or holding an asset from a related party, and allowing a related party to use fund assets, is restricted under the SIS Act, and leasing residential property to a member's relative is a classic prohibited arrangement. Charging market rent or documenting the lease does not cure the underlying prohibition.

Question 5SMSF audit and compliance

Which of the following is an example of a fund asset that is generally an in-house asset of an SMSF?

  1. Listed shares in an unrelated public company
  2. A bank term deposit with an unrelated authorised deposit-taking institution
  3. A loan made by the fund to a related party of the fund Correct answer.
  4. Residential property leased to an unrelated tenant at arm's length

Explanation

Loans to related parties and investments in related entities are the typical categories of in-house assets, which are capped at 5% of total fund assets for SMSFs. Listed shares, bank deposits and property leased to unrelated parties are not in-house assets.

Question 6SMSF audit and compliance

An SMSF auditor is assessing whether the fund satisfies the sole purpose test. Which factor is most relevant to that assessment?

  1. Whether the audit fee was paid from fund assets
  2. Whether members received benefits before retirement other than in permitted circumstances Correct answer.
  3. Whether the fund's return exceeded the inflation rate
  4. Whether the trustee holds meetings quarterly

Explanation

The sole purpose test requires the fund to be maintained primarily for retirement benefits, so early release of benefits outside permitted conditions of release indicates a breach. Investment returns, payment of proper expenses and meeting frequency are not determinative of the test.

Question 7SMSF audit and compliance

Which statement about the auditor's independence requirements for an SMSF is correct?

  1. The auditor must be independent of the fund and must not be a member or trustee of it Correct answer.
  2. The auditor may prepare the fund's financial statements and audit them if disclosed
  3. The auditor may be a member of the fund if the trustee consents in writing
  4. The auditor may be the fund's accountant provided the fee is modest

Explanation

An approved SMSF auditor must be independent of the fund and cannot be a member or trustee, or a related party in a way that compromises independence. Preparing the accounts being audited is a significant self-review threat that is inconsistent with the required independence.

Question 8SMSF audit and compliance

An SMSF auditor is reviewing a contribution of $300,000 received for a 60-year-old member in June. Which matter is most directly relevant to the auditor's compliance testing?

  1. Whether the member's contribution caps were exceeded for that financial year Correct answer.
  2. Whether the member intends to retire in the following year
  3. Whether the contribution was made in cash or by electronic transfer
  4. Whether the trustee recorded the contribution in the correct bank account

Explanation

Accepting contributions in excess of the member's concessional or non-concessional cap creates an excess contributions situation and is a compliance matter the auditor tests. The payment method and bank account used are administrative, and the member's future retirement intention does not affect cap compliance for the year received.

Question 9SMSF audit and compliance

Which of the following best describes the auditor's responsibility regarding the fund's investment strategy?

  1. The auditor must confirm the trustee has formulated and complied with an investment strategy consistent with the fund's circumstances Correct answer.
  2. The auditor must design the investment strategy on the trustee's behalf
  3. The auditor need not consider the strategy because it is a trustee matter
  4. The auditor must verify the strategy against the fund's annual return only

Explanation

Trustees must formulate and give effect to an investment strategy having regard to diversification, liquidity and the fund's circumstances, and the auditor obtains evidence that this has occurred. The auditor does not design the strategy, and relying solely on the annual return or ignoring the strategy would be insufficient.

Question 10SMSF audit and compliance

An SMSF trustee lends $80,000 of fund money to a member's private company on commercial terms. What is the principal compliance concern for the auditor?

  1. The loan is only a concern if the company defaults
  2. The loan is a financial asset that must be valued at cost
  3. The loan constitutes a prohibited loan to a related party and an in-house asset Correct answer.
  4. The loan is permitted because commercial interest is charged

Explanation

Financial assistance to members and their relatives is prohibited, and loans to related parties also count as in-house assets subject to the 5% cap. Commercial terms do not cure the prohibition on providing financial assistance to members or relatives.

Question 11SMSF audit and compliance

Which of the following best describes the role of the ATO auditor number in the SMSF audit process?

  1. It is the fund's Australian Business Number
  2. It is a reference number generated by the fund's bank
  3. It is the auditor's personal tax file number used for lodgment
  4. It is an identifier issued to the approved auditor that is included in the fund's audit report and annual return Correct answer.

Explanation

The ATO issues an auditor number to each approved SMSF auditor, and that number is recorded on the audit report and annual return so the regulator can identify who performed the audit. It is not a tax file number, the fund's ABN, or a bank reference.

Question 12SMSF audit and compliance

An SMSF auditor discovers that the trustee has not obtained a current market valuation for a commercial property held by the fund for three years. What is the most appropriate audit response?

  1. Disclaim the audit opinion automatically
  2. Report the trustee to ASIC without further enquiry
  3. Accept the historical cost as fair value because the property is commercial
  4. Raise the matter with the trustee and consider its effect on the financial statements and compliance Correct answer.

Explanation

The auditor should communicate the deficiency to the trustee and assess whether the financial statements are materially misstated and whether any reporting obligation arises. Immediate reporting without enquiry or an automatic disclaimer would be a disproportionate response to an identified deficiency.

Question 13SMSF audit and compliance

Which statement about the audit of an SMSF's compliance with the payment of benefits is correct?

  1. Benefits must be paid in accordance with a condition of release and the trust deed Correct answer.
  2. Benefits may be paid before preservation age if the member resigns
  3. Benefits may be paid to a member's employer on the member's request
  4. Benefits may be paid in specie to a member at any time before preservation age

Explanation

Benefits can only be paid once a condition of release is satisfied and in the form permitted by the trust deed and SIS regulations. Resignation from employment is not itself a condition of release, and payment to an employer is not a permitted benefit payment.

Question 14SMSF audit and compliance

An SMSF has 40% of its assets invested in a single unlisted company. Which audit issue is most significant?

  1. The investment requires member consent before acquisition
  2. The concentration raises diversification concerns under the investment strategy covenant Correct answer.
  3. The investment is automatically prohibited by the SIS Act
  4. The fund may breach the in-house asset rules only if the company is unrelated

Explanation

Trustees must consider diversification and the investment strategy covenant, and significant concentration in a single asset is a key audit consideration. The SIS Act does not prohibit concentration outright, and member consent is not a statutory requirement for investment decisions.

Question 15SMSF audit and compliance

Which of the following is most likely to indicate a breach of the borrowing provisions for an SMSF?

  1. The fund borrows under a limited recourse borrowing arrangement with a separate bare trust
  2. The fund borrows using fund assets generally as security for the lender Correct answer.
  3. The fund uses a limited recourse loan to acquire a single asset
  4. The fund repays a limited recourse loan from rental income

Explanation

Limited recourse borrowing requires the lender's recourse to be limited to the single acquirable asset held in trust, so giving general recourse over other fund assets breaches the borrowing provisions. Using a limited recourse arrangement, acquiring a single asset and repaying from income are consistent with the rules.

Question 16SMSF audit and compliance

Which document should the auditor obtain to verify the trustee's appointment and the fund's governing rules?

  1. The member's product disclosure statement
  2. The auditor's engagement letter
  3. The fund's latest annual return
  4. The executed trust deed and any deeds of variation Correct answer.

Explanation

The executed trust deed and any variations establish the fund's governing rules and the trustee's powers and appointment. The annual return, engagement letter and product disclosure statement do not evidence the governing rules.

Question 17SMSF audit and compliance

An SMSF auditor is evaluating whether a contribution was made by an employer for a member who is an employee of the corporate trustee. What is the key compliance question?

  1. Whether the contribution exceeded the fund's total assets
  2. Whether the employer is a related party of the fund
  3. Whether the member attended the trustee meeting
  4. Whether the contribution was made under a valid salary sacrifice arrangement or as a mandated contribution Correct answer.

Explanation

Employer contributions must be validly made, whether as mandated superannuation guarantee or under an effective salary sacrifice arrangement. The employer's related-party status and the member's meeting attendance do not determine the validity of the contribution, and total fund assets are irrelevant to that question.

Question 18SMSF audit and compliance

Which of the following best describes the auditor's obligation when the trustee refuses to provide requested information relevant to the audit?

  1. The auditor should accept the trustee's explanation without further evidence
  2. The auditor must immediately resign from the engagement
  3. The auditor should consider the effect on the audit opinion and whether the matter is reportable Correct answer.
  4. The auditor should issue an unmodified opinion with a note in the management letter

Explanation

A scope limitation affects the auditor's ability to obtain sufficient appropriate evidence and must be evaluated for its effect on the opinion and for any reporting obligation. It does not automatically require resignation, and accepting explanations without evidence is not appropriate.

Question 19SMSF audit and compliance

Which of the following is a key difference between an SMSF audit and a general purpose company audit?

  1. SMSF audits include testing of compliance with the SIS Act and regulations in addition to the financial report Correct answer.
  2. SMSF audits are performed only by the ATO
  3. SMSF audits do not require an opinion on the financial statements
  4. SMSF audits do not require independence

Explanation

The SMSF audit combines an opinion on the financial statements with an assessment of compliance with the SIS Act and regulations, reflecting the fund's regulatory obligations. Independence is still required, the ATO does not perform the audit, and an opinion on the financial statements is still formed.

Question 20SMSF audit and compliance

An SMSF auditor notes that the trustee has recorded a $50,000 payment to a member as a 'loan' during the year. What is the auditor's primary concern?

  1. Whether the interest rate exceeded the cash rate
  2. Whether the loan was documented in writing
  3. Whether the payment is a prohibited payment of benefits or financial assistance Correct answer.
  4. Whether the member declared the amount as income

Explanation

Payments to members outside permitted conditions of release may be unauthorised benefit payments, and financial assistance to members is prohibited. Documentation, interest rates and the member's tax treatment are secondary to whether the payment itself was permitted.

Question 21SMSF audit and compliance

Which statement correctly describes the auditor's reporting obligation when a contravention is identified that has not been rectified and is considered significant?

  1. The auditor must report it to ASIC in the approved form Correct answer.
  2. The auditor has no obligation if the trustee disagrees
  3. The auditor must disclose it only in the management letter
  4. The auditor must report it only to the ATO

Explanation

Significant unrectified contraventions must be reported to ASIC using the approved auditor contravention report form. Reporting to the ATO alone or only in a management letter does not satisfy the obligation, and trustee disagreement does not remove it.

Question 22SMSF audit and compliance

An SMSF auditor is assessing the fund's compliance with the requirement that assets be valued at market value. Which approach best meets the requirement for a residential property held by the fund?

  1. Obtaining a valuation from a qualified independent valuer at appropriate intervals Correct answer.
  2. Using the original purchase price adjusted for inflation
  3. Using the council rates notice value
  4. Relying on the trustee's estimate without supporting evidence

Explanation

Assets must be valued at market value, and for real property this generally requires a valuation by a suitably qualified independent valuer obtained at appropriate intervals. Purchase price, council valuations and unsupported trustee estimates do not reliably reflect market value.

Question 23SMSF audit and compliance

Which of the following best describes the auditor's consideration of the fund's liquidity when reviewing the investment strategy?

  1. The auditor must confirm the trustee has considered the fund's expected cash flow and ability to meet benefit payments Correct answer.
  2. The auditor need not consider liquidity because it is a trustee matter
  3. The auditor must approve each withdrawal before payment
  4. The auditor must ensure the fund holds at least 20% of assets in cash

Explanation

The investment strategy covenant requires the trustee to consider the fund's liquidity and expected cash flow needs, particularly for benefit payments, and the auditor obtains evidence of that consideration. There is no prescribed minimum cash holding, and approving withdrawals is not an audit function.

Question 24SMSF audit and compliance

Which of the following is the most appropriate action for an auditor who identifies that the trustee has failed to keep adequate records of member contributions?

  1. Treat the matter as immaterial because records can be reconstructed later
  2. Refer the matter directly to the police
  3. Report the deficiency to the trustee and assess its impact on the audit and compliance position Correct answer.
  4. Immediately issue an adverse opinion without further work

Explanation

Record-keeping deficiencies are communicated to the trustee and assessed for their effect on the financial statements and the fund's compliance with record-keeping obligations. Immediate adverse opinion or external referral without assessment would be premature and disproportionate.

Question 25SMSF audit and compliance

An SMSF auditor is reviewing a fund where the trustee has invested 8% of total assets in a related unit trust. What is the most likely compliance issue?

  1. The investment requires ASIC approval before acquisition
  2. The investment is prohibited in all circumstances
  3. The investment is acceptable because the unit trust is related
  4. The investment may exceed the 5% in-house asset limit Correct answer.

Explanation

Investments in related entities are in-house assets subject to a 5% cap of total fund assets, so an 8% holding is likely to breach that limit. Such investments are not absolutely prohibited, do not require ASIC approval, and relatedness is precisely what triggers the cap.

Question 26SMSF audit and compliance

An SMSF auditor is reviewing the fund's annual return. Which body is responsible for issuing the auditor's formal approval to conduct SMSF audits?

  1. The fund's trustee, who appoints the auditor each year
  2. The professional accounting body to which the auditor belongs
  3. The Australian Securities and Investments Commission, which licenses all financial auditors
  4. The Australian Taxation Office, which registers approved SMSF auditors Correct answer.

Explanation

Approved SMSF auditor status is conferred and administered by the ATO, which maintains the register of approved auditors and can suspend or disqualify them. ASIC regulates company auditors, not the SMSF auditor approval regime. A trustee's appointment of an auditor does not itself confer approval, and professional body membership is a separate credential.

Question 27SMSF audit and compliance

An SMSF holds a residential property that a member has been using rent-free as a holiday home. Which contravention is most directly indicated?

  1. A breach of the contribution acceptance rules
  2. A breach of the sole purpose test and the prohibition on providing financial assistance to members Correct answer.
  3. A breach of the in-house asset rules
  4. A breach of the borrowing provisions

Explanation

Using fund assets to provide a private benefit to a member is inconsistent with the sole purpose of providing retirement benefits and is also prohibited financial assistance to a member or relative. The conduct concerns use of an asset, not its classification as an in-house asset. No borrowing or contribution transaction is involved.

Question 28SMSF audit and compliance

Which record must an SMSF trustee retain to support the fund's eligibility for the annual supervisory levy concession?

  1. A copy of each member's tax return
  2. Evidence that the fund is a complying superannuation fund for the income year Correct answer.
  3. A valuation of every asset held at year end
  4. A statutory declaration from each member confirming their employment status

Explanation

The reduced levy applies where the fund is a complying superannuation fund for the relevant income year, which the trustee evidences through the fund's compliance status. Member tax returns are not fund records. Statutory declarations of employment and full asset valuations are not the specified basis for the concession.

Question 29SMSF audit and compliance

An SMSF auditor is asked to confirm the fund's compliance with the requirement that the trustee be a resident of Australia. Which single fact is most directly relevant?

  1. Whether the members have Australian citizenship
  2. Whether the fund's investments are all located in Australia
  3. Whether the trustee is an Australian tax resident and the fund's central management and control is ordinarily exercised in Australia Correct answer.
  4. Whether the fund's bank account is held with an Australian institution

Explanation

An SMSF must be an Australian superannuation fund, which requires the trustee to be an Australian resident and central management and control to be ordinarily exercised in Australia. The location of the bank or the assets is not the test. Member citizenship is irrelevant to the fund's residency status.

Question 30SMSF audit and compliance

An SMSF auditor finds that the trustee has accepted a member's personal cheque made payable to the member and deposited it into the fund's account. What is the principal compliance concern?

  1. The contribution exceeds the concessional cap
  2. The contribution constitutes a borrowing by the fund
  3. The contribution may not have been made to the fund as required Correct answer.
  4. The contribution is an in-house asset

Explanation

A contribution must be made to the fund; a cheque payable to the member and then banked does not clearly evidence that the amount was contributed to the fund. Cap compliance is a separate question that depends on the amount and category. In-house asset and borrowing rules are not engaged by the manner of payment.

Question 31SMSF audit and compliance

An SMSF auditor is reviewing a related party loan from the fund to a member's spouse. Which feature is most likely to give rise to an in-house asset breach?

  1. The loan is documented by a written agreement
  2. The loan is secured by a mortgage over the spouse's residence
  3. The loan is repayable on demand with interest at commercial rates
  4. The loan balance exceeds the permitted proportion of the fund's total assets Correct answer.

Explanation

A loan to a related party is an in-house asset, and the fund must keep the market value of in-house assets at or below the permitted proportion of total assets. Security, documentation and commercial terms affect valuation and arm's length compliance but do not by themselves resolve the in-house asset limit. The limit is tested against the fund's total assets at the relevant date.

Question 32SMSF audit and compliance

An SMSF auditor is assessing whether a member has met a condition of release to receive a lump sum. Which source is the most authoritative for confirming the member's date of birth?

  1. The fund's investment strategy document
  2. The member's superannuation member statement
  3. A verbal confirmation from the member recorded in the trustee minutes
  4. A certified copy of a birth certificate or passport held on file Correct answer.

Explanation

Conditions of release such as reaching age 65 or retiring after preservation age depend on the member's age, which should be verified from a reliable primary document such as a certified birth certificate or passport. Verbal confirmation and internal statements are secondary. The investment strategy has no bearing on a member's age.

Question 33SMSF audit and compliance

An SMSF auditor is reviewing the fund's investment strategy. Which matter must the trustee consider under the relevant covenant?

  1. The personal tax position of each member's spouse
  2. The credit rating of the fund's auditor
  3. The diversification of the fund's investments and the liquidity of those investments Correct answer.
  4. The investment performance of unrelated funds

Explanation

The trustee covenant requires the investment strategy to consider diversification, the mix of assets, liquidity and the ability to meet liabilities, and the risk and return profile. Personal circumstances of members' spouses and performance of unrelated funds are not part of the covenant. The auditor's credit rating is irrelevant.

Question 34SMSF audit and compliance

An SMSF auditor identifies that a limited recourse borrowing arrangement has been varied to add a second asset to the same holding trust. What is the principal issue?

  1. The arrangement must be with a bank rather than a related party
  2. The arrangement must be repaid within twelve months
  3. The arrangement must be with a single asset and a single acquirable asset Correct answer.
  4. The arrangement must be approved by the ATO in advance

Explanation

A limited recourse borrowing arrangement must relate to a single acquirable asset, although a replacement asset may occur in limited circumstances. Adding a separate asset to the same holding trust breaches that requirement. There is no requirement to borrow from a bank, no twelve month repayment rule and no advance ATO approval.

Question 35SMSF audit and compliance

An SMSF auditor is evaluating whether an expense paid from the fund was properly incurred. Which test is most relevant?

  1. Whether the expense was incurred in connection with the fund's investments or the administration of the fund Correct answer.
  2. Whether the expense was approved at a trustee meeting
  3. Whether the expense exceeded $500
  4. Whether the expense was paid by electronic transfer

Explanation

Fund expenses must be incurred in connection with the fund's investments or administration, not for the personal benefit of members. Meeting approval and payment method are procedural matters that do not establish the purpose. The amount alone does not determine deductibility or compliance.

Question 36SMSF audit and compliance

An SMSF auditor is reviewing the fund's financial statements and notes. Which disclosure is required where the fund has a limited recourse borrowing arrangement?

  1. The number of trustee meetings held during the year
  2. The name of the lender's solicitor
  3. The value of the asset held under the arrangement and the associated liability Correct answer.
  4. The member's marginal tax rate

Explanation

The financial statements should disclose the asset held under a limited recourse borrowing arrangement and the related liability so users can understand the fund's financial position. The lender's solicitor, member tax rates and meeting counts are not required disclosures. These details would not assist users in assessing the financial statements.

Question 37SMSF audit and compliance

An SMSF auditor discovers that the trustee has not held a trustee meeting or signed minutes for two years, although all decisions were made informally. What is the most appropriate audit response?

  1. Resign immediately without further inquiry
  2. Treat the matter as immaterial because decisions were in fact made
  3. Report the record-keeping failure as a contravention and consider its effect on the audit opinion Correct answer.
  4. Adjust the fund's financial statements to include a provision

Explanation

Trustees must keep minutes of meetings and records of decisions, and a sustained failure is a reportable contravention. The auditor should assess the effect on the audit and consider whether the matter indicates broader control weaknesses. Immediate resignation and financial statement provisions are not the appropriate responses.

Question 38SMSF audit and compliance

An SMSF auditor is assessing whether the fund is a complying superannuation fund. Which matter is most likely to jeopardise complying status?

  1. The trustee has failed to comply with the fund's governing rules in a way that is not merely trivial Correct answer.
  2. The fund has a small number of members who are all related
  3. The fund has never been the subject of an ATO audit
  4. The fund has not elected to be regulated by the ATO

Explanation

A fund may lose complying status where the trustee fails to comply with the governing rules or the superannuation law in a way that is not minor. Having related members and not having been audited are normal and do not affect status. The regulated election is a separate administrative matter.

Question 39SMSF audit and compliance

An SMSF auditor is reviewing a fund where the trustee has valued an unlisted property at the previous year's value without any supporting evidence. What is the most appropriate conclusion?

  1. The valuation must be referred to ASIC
  2. The valuation is acceptable because the property has not been sold
  3. The valuation is acceptable if the trustee signs a declaration
  4. The valuation lacks sufficient appropriate evidence and may require modification of the audit opinion Correct answer.

Explanation

The auditor must obtain sufficient appropriate evidence that assets are valued at market value, and an unsupported rollover of a prior year figure does not provide that evidence. The absence of a sale is not evidence of current value. ASIC does not regulate SMSF valuation, and a trustee declaration does not substitute for evidence.

Question 40SMSF audit and compliance

An SMSF auditor is considering the fund's compliance with the prohibition on acquiring assets from related parties. Which acquisition is most likely to be permitted?

  1. A vintage car acquired from a member's business
  2. A painting acquired from a member for display in the member's home
  3. A residential property acquired from a member's spouse at market value
  4. Listed shares acquired on the ASX at market price from a member Correct answer.

Explanation

Acquisitions of listed securities on an arm's length market from a related party are permitted, unlike most other acquisitions from related parties. Property, collectibles and business assets acquired from related parties are generally prohibited regardless of price. Acquiring a painting for a member's home would also raise sole purpose concerns.

Question 41Superannuation legislation and regulatory framework

Under the Superannuation Industry (Supervision) Act 1993, which standard is a self managed superannuation fund required to satisfy at all times?

  1. The fund must have at least two individual trustees at all times
  2. The fund must have no more than six members and each member must be a trustee or a director of a corporate trustee Correct answer.
  3. The fund must appoint an independent investment manager for its assets
  4. The fund must lodge an annual return with APRA rather than the ATO

Explanation

The core SMSF definition in section 17A requires that the fund have no more than six members and that each member occupy a trustee position, either as an individual trustee or as a director of the corporate trustee. These characteristics must hold continuously, not merely at the time of establishment.

Question 42Superannuation legislation and regulatory framework

A self managed superannuation fund has four members. Two members are individual trustees and the other two are directors of a corporate trustee company. What is the status of this arrangement?

  1. Compliant, provided the corporate trustee has no more than four directors
  2. Compliant, because all four members hold some trustee role
  3. Non-compliant, because every member must be a trustee or director of the same trustee Correct answer.
  4. Non-compliant, because a fund may not use a corporate trustee with individual trustees

Explanation

Section 17A requires a single trustee structure in which every member is either an individual trustee or a director of the corporate trustee. A mixed arrangement where some members are individual trustees and others are directors of a company does not satisfy the definition and the fund would cease to be an SMSF.

Question 43Superannuation legislation and regulatory framework

Which borrowing arrangement is expressly permitted for an SMSF under the superannuation legislation?

  1. A margin loan secured against the fund's entire investment portfolio
  2. An unsecured loan from a related party with no written agreement
  3. A limited recourse borrowing arrangement over a single acquirable asset held in a separate trust Correct answer.
  4. A personal loan to a member that the member on-lends to the fund

Explanation

Section 67A permits an SMSF trustee to borrow where the borrowed funds are applied to acquire a single acquirable asset, the asset is held on trust, and the lender's recourse is limited to that asset. The arrangement must satisfy the conditions in sections 67A and 67B throughout the life of the borrowing.

Question 44Superannuation legislation and regulatory framework

An SMSF trustee wants to acquire a residential property from a member's spouse at market value. What is the correct conclusion?

  1. The acquisition is permitted because it occurs at arm's length value
  2. The acquisition is permitted if the property is used solely for business purposes
  3. The acquisition is prohibited because a related party of a member is an excluded acquirer Correct answer.
  4. The acquisition is permitted if the member's spouse is not a fund member

Explanation

Section 66 prohibits an SMSF trustee from intentionally acquiring assets from a related party of the fund, and a member's spouse is a related party. Market value does not cure the prohibition, and the exclusion for business real property applies only to direct real property used wholly and exclusively in a business.

Question 45Superannuation legislation and regulatory framework

Which investment is an SMSF absolutely prohibited from acquiring, regardless of the circumstances?

  1. A residential property held under a limited recourse borrowing arrangement
  2. Direct shares in an ASX-listed company
  3. A term deposit with an unrelated authorised deposit-taking institution
  4. Collectibles such as artwork held for personal enjoyment by members Correct answer.

Explanation

Since 1 July 2011, SMSF trustees have been prohibited from acquiring collectibles and personal use assets, and must not store them in a member's private residence. Listed shares, term deposits and property held under a compliant limited recourse borrowing arrangement are all permitted investments.

Question 46Superannuation legislation and regulatory framework

An SMSF trustee provides financial assistance to a member using fund resources. Under which provision is this conduct most directly regulated?

  1. Section 66, which restricts acquisitions from related parties
  2. Section 35C, which governs the investment strategy
  3. Section 65, which prohibits lending or giving financial assistance to members or relatives Correct answer.
  4. Section 67A, which permits limited recourse borrowing

Explanation

Section 65 prohibits a trustee from lending money or providing financial assistance to a member or a relative of a member using fund resources. The prohibition is aimed at protecting fund assets from being diverted to members before retirement.

Question 47Superannuation legislation and regulatory framework

What is the maximum number of members permitted in a self managed superannuation fund?

  1. Four
  2. Two
  3. Six Correct answer.
  4. Ten

Explanation

The definition of an SMSF in section 17A of the SIS Act caps membership at six. A fund with more than six members fails the definition and would be regulated as a small APRA fund instead.

Question 48Superannuation legislation and regulatory framework

Which document primarily governs the internal operation of an SMSF and can impose rules stricter than the SIS Act?

  1. The member's binding death benefit nomination
  2. The trustee's minutes of meetings
  3. The fund's trust deed Correct answer.
  4. The fund's investment strategy document

Explanation

The trust deed establishes the fund and sets out the powers and duties of trustees, and it may impose restrictions beyond those in the SIS Act and regulations. Trustees must comply with both the deed and the statutory covenants, and where the deed is stricter, the deed governs.

Question 49Superannuation legislation and regulatory framework

Which covenant is automatically included in the governing rules of every SMSF by section 52 of the SIS Act?

  1. A covenant to act honestly and in the best interests of beneficiaries Correct answer.
  2. A covenant to obtain annual actuarial certification of the fund
  3. A covenant to invest only in assets located in Australia
  4. A covenant to insure fund assets against all possible risks

Explanation

Section 52 imposes a series of covenants on trustees, including acting honestly and exercising care, skill and diligence in the best interests of beneficiaries. These covenants apply regardless of whether they are written into the trust deed.

Question 50Superannuation legislation and regulatory framework

An SMSF trustee is considering an investment that offers a guaranteed 25 percent annual return with no risk. How should the trustee treat this under the investment strategy covenant?

  1. Accept it because the deed permits any investment
  2. Accept it because the return benefits members
  3. Accept it only if the amount invested is below ten percent of fund assets
  4. Decline it and document the assessment of risk and return Correct answer.

Explanation

Section 52 requires trustees to exercise care, skill and diligence and to formulate an investment strategy that considers risk, return, diversification and liquidity. A guaranteed high return with no risk is a classic warning sign of fraud, so the trustee should reject it and keep a record of the assessment.