How do accountants’ letters work for an SMSF?

Being SMSF accountants we are often requested to provide a bank or other lending institution with an “Accountant’s Letter”.  The most asked for letter is in relation to a Bare Trust/ limited recourse borrowing arrangement (LRBA).

Why do Lenders need Accountants Letters for SMSFs?

As part of their lending process to assess risk a bank may request us to provide information about an SMSF when the trustees apply to borrow money under an LRBA. This helps them to meet their KYC (Know Your Customer) responsibilities without putting in much actual effort as it is much easier on them to rely on us to confirm details rather than working them out for themselves. These details can include the annual fees for the fund along with the assets in the fund or details from the SMSF deed itself.

Common information request that we can provide may include:

• confirmation of administration and other fees and costs incurred by the SMSF as part of an assessment to see if the fund can service the loan. We can easily prepare this letter and also point the lending institution to the SMSF Pricing Page on our website.
• details of the fund structure such as:
  • the name of the fund
  • date of establishment
  • the members of the fund
  • the name of the trustees if individuals
  • the name and the ACN if a corporate trustee
  • corporate trustee does not trade in its own right and does not have any debt or liabilities and, if applicable, is a sole purpose trustee
  • the directors of a corporate trustee
  • ATO compliance status
  • confirming the existence of a bare trust and the name of the corporate trustee
  • confirming the bare trust was established with the sole purpose of legally holding the asset for the benefit of the SMSF
  • declaring the bare trustee does not trade in its own right

Most commonly the bank is wanting to validate that the SMSF is a complying superannuation fund regulated by the ATO and the borrowing they want to undertake complies with Section 67A of the Superannuation Industry (Supervision) Act 1993 (SISA).

Free Accountants Letters for SMSFs

SMSF Australia provide an accountant’s letter free of charge for funds paying us to setup their Bare Truss and using our ongoing administration services which contrasts with many other providers who often charge $100 to $200 to provide a letter to the bank. The reason we can do this without charge is that it is a template that takes under two minutes to complete in most cases, so we are happy to package it into our existing fees.

We can support the fund’s loan application with financial information we have prepared such as the fund’s taxable income, confirm the fund is up to date with lodgement of their annual returns and confirm if the latest financial statements have been audited. We can provide factual information to the bank including historical details about contributions and investments.

What can’t we write in Accountants Letters?

Accountants have to be very careful with what they write on behalf of clients as it can open the firm up to liability in the event a client defaults on their mortgage. This means we must have evidence of anything that we prepare for clients and stick to purely factual information. We cannot comment on items such as the client’s decision-making process, whether they are able to personally maintain their contributions into super (as we don’t do our clients financial planning/personal budgeting) or whether the loan is the right thing for the client to do.

Most lending institutions are really good about only asking accountants to write about areas within our gambit but occasionally they push into areas where we have to say no. Usually the lender will just find another way around once we push back but please be aware up front we can’t just write anything they ask us for no matter how pushy the bank or broker is being.

If you need some help with an accountant’s letter for an SMSF loan reach out to our friendly team today for support but please note, we can only prepare these for existing clients where we have been engaged to setup the Bare Trust and provide ongoing support for the Self Managed Super Fund.