Generally, benefits paid by a SMSF are triggered by the member’s retirement, turning age 65 years, death, physical or mental incapacity,^[112] termination of employment, or reaching preservation age and commencing a TRIS. In the event of divorce, benefits may be split pursuant to a superannuation agreement, consent order or an arbitrated court order.^[113]

SMSFs may pay benefits by way of a lump sum (in cash or in specie^[114]), pension or insurance benefit.^[115] An accumulation fund may pay the following types of pensions:

1. account based income streams, including TRISs; and
2. existing allocated pensions and market linked income streams (formerly known as market linked pensions).

The relevant assertions with respect to benefits paid are:

• Occurrence – benefits recorded by the SMSF as paid have been paid.
• Completeness – benefits paid or payable, if appropriate, by the SMSF have been recorded.
• Accuracy – benefits paid by the SMSF have been calculated appropriately. The minimum annual benefits amount has been paid and, for TRISs only, the payment does not exceed the maximum annual payment amount. The correct amount of pay-as-you-go (PAYG) withholding tax, has been withheld, where the benefit is from an untaxed source or the member is under 60 years.
• Cut-off – benefits paid by the SMSF have been recorded in the correct period.
• Classification – benefits paid by the SMSF have been recorded in the applicable accounts, including the applicable member’s account.

Audit risks to be considered in relation to auditing benefits paid may include, but are not limited to:

• payment of a benefit to which the member or beneficiary is not entitled, providing early access to benefits;
• incorrect calculation of a benefit payment;
• payment of a benefit to an incorrect member or beneficiary;
• pension payments not paid in cash; and
• minimum payments not made for all pensions and the maximum payment for a TRIS is exceeded.

For death benefits, the auditor establishes if a binding death benefit nomination exists and determines that the specific trust deed requirements have been met following the death of a member.

Upon the death of a pensioner, many SMSF pensions are reversionary and continue to pay the pension to the surviving spouse or reversionary beneficiary. The reversionary feature is generally established at commencement of the pension, but some fund’s governing rules may permit establishment under a discretionary power in the deed. The auditor, in the case of the death of a pensioner with a reversionary benefit, checks that the pension is being paid to the nominated reversionary beneficiary and that the benefit has not been transferred to reserves or paid out as a lump sum.

Divorce and Splitting of Benefits

In circumstances where a member’s benefit within a SMSF is subject to a property settlement upon divorce or a “splitting arrangement”, the auditor reviews the documentation supporting the splitting of the benefit. A settlement is evidenced by one or more of the following documents:

1. superannuation agreement – negotiated between the divorcing parties and certified by two legal practitioners who represent the respective divorcing parties;
2. consent order – an order of the court frequently negotiated between two legal practitioners who represent the respective divorcing parties and submitted to the court for approval;
3. arbitrated court order – where the divorcing parties are unable to agree on the settlement terms and the court decides the settlement amount and terms;
4. notice by a non-member;^[116]
5. notice by a trustee of information regarding an interest subject to a payment split;^[117]
6. payment split notice by a trustee to both member and non-member;^[118] and
7. one of the following notices by the non-member spouse to the trustee to:
   1. create a new interest;^[119]
   2. rollover or transfer benefits;^[120]or
   3. pay a lump sum where a non-member has met a condition for release.^[121]

Once an order or agreement has been executed properly, the trustees are required to implement the order or agreement. In general, this may mean one of the parties exits the SMSF. Where there is a two member SMSF, the exiting member may take part of the other party’s interest as well as their own. The auditor then treats the exit as per a normal member rollover or cashing out of a benefit. The auditor is careful to ensure that any capital gains issues are addressed, and that the tax components and preservation status of the superannuation payments are maintained. If a member exits the SMSF, the remaining trustee needs to ensure compliance with section 17A of SISA by:

1. appointing a new individual trustee; or
2. appointing a corporate trustee of which the remaining member is the sole director or one of two directors.

Due to the potential complexities and subtleties of the court orders, there exists the possibility that court orders inadvertently conflict with the SISA or SISR. In these cases the auditor may seek legal advice where benefit payments under a court order may be in contravention of the SISA or SISR.