What auditors are looking for

Auditors are tightening their review of property documentation, particularly when it comes to assessing market values. This doesn’t just apply to the property itself, but also to the rent being charged—especially if the property is leased to related parties.

If your super fund holds business real property that is rented to a related party, auditors will require evidence that the arrangement is on arm’s length terms and fully compliant with the Superannuation Industry (Supervision) (SIS) Act.

To meet the SIS Act requirements, auditors expect the following for commercial lease agreements:

• A fully executed written lease agreement
• Commercial lease terms (not favourable to either party)
• A rental appraisal to confirm market rent at:
  • Lease commencement
  • Rent review dates (auditors prefer CPI-linked increases than fixed percentage rises)
  • When there are material changes to the property
  • At extension or renewal of the lease
• Rent paid regularly and on time, consistent with commercial practices

Rental appraisals don’t have to be formal – a real estate agent’s assessment is often sufficient – but auditors do require comparable market evidence to support the rent level. Where this isn’t possible, a formal property valuation may be necessary.

If you’re unsure whether your lease arrangements meet the requirements, or need assistance obtaining the right documentation, please contact our office. We’re here to help you stay compliant and avoid unnecessary issues at audit time.