SMSF audit firm flags trap with GST
Certain transactions involving property that was purchased as a going concern are being recorded incorrectly in some instances, which can leave to potential breaches if not rectified, an SMSF auditor has warned.
ASF Audits executive general manager of technical services Shelley Banton said while technology has helped automate the process of analysing large sections of financial and non-financial data, there are still a number of investments requiring continual scrutiny by SMSF practitioners and auditors.
One of the common examples is where a fund purchases a property as a going concern and is GST-free, said Ms Banton.
Problems can start to occur she said where the purchase price of the property is booked in the fund’s financials excluding GST.
“This happens in the blink of an eye, especially where the fund is registered for GST and the SMSF software processes it as a standard transaction. The GST is reversed out of the asset account and recorded as a separate asset called 'GST refundable'.”
“Under these circumstances, fund financials have to be amended with the property re-booked at the full purchase price without the corresponding GST refundable.”
“Where this error isn’t picked up, the SMSF may face issues such as a breach of r8.02B SISR with an incorrect market value of property assets in fund financials,” she said.
It can also trigger an ATO tax audit, she said, that could potentially result in penalties and interest charges.
“When the fund has already claimed and received the GST from the ATO, it’s imperative that the error is found and rectified as soon as possible,” she warned.
“It is important that SMSF auditors remain focused on the fine details and not rely on software to ‘get it right’, as this approach may bring significant problems in the future.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.