Speaking to SMSF Adviser, SuperAuditors director Shelley Banton said she has observed SMSF practitioners and auditors are being increasingly caught out with compliance issues where they are rushing the process of checking over the purchase contract of a commercial property sale and all other associated documentation, or failing to check the documentation at all.
Ms Banton noted the basics are being increasingly overlooked, and stressed that both auditors and practitioners should be checking that the super fund’s name is correct on the contract, what the date of the contract is, what the price of the contract is, and check to see whether it’s been purchased as a going concern.
“Where [the commercial property] has been purchased as a going concern, this means there’s a business in place basically. The business continues before the purchase and after the purchase,” she explained.
“A purchase as a going concern is GST free, so the purchase price is the price, not the purchase price less GST.”
Depending on what state the property is purchased in, this information is usually listed at the bottom of the contract, such as in NSW, or included as a special agreement or condition, she said.
This is can often be missed by practitioners, 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 when the fund is registered for GST and the SMSF software processes it as a normal transaction,” said Ms Banton.
“The GST simply gets reversed out of the asset account and is recorded as a separate asset called ‘GST refundable’.”
Where this issue isn’t identified and rectified this may lead to the SMSF breaching r8.02B SISR, as they have provided an incorrect market value of property asset in the fund financials.
It can also trigger an ATO tax audit that may result in penalties and interest charges.
Both practitioners and auditors she said need to ensure that complete these checks as part of their procedures.
“People are human and make mistakes of course, but if you’re not checking it in the first place, you’re going to open yourself up to more issues and litigation from your clients, moving forward,” said Ms Banton.
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This is a confusing article.
The purpose of the ‘alert’ is to identify that purchases of ‘going concerns’ by a SMSF that is registered for GST do not include a GST component and, if the SMSF administration system is switch to GST, it will automatically take GST from the acquisition price hence understating the cost of the asset.
Plain language is needed in this space.
Ms Banton, you can’t have it both ways. You can’t say “A purchase as a going concern is GST free, so the purchase price is the price, not the purchase price less GST.” Surely no one is that stupid. I would have thought that the bigger issue is that a SMSF cannot own a business (a going concern). In order for a property purchase to be GST free the property must come with a business attchaed.Can a property be a going concern? I think not. As well the vendor must provide a tax invoice in order for a claim to be made for GST. If the sale is GST free there will not be a tax invoice hence no claim. And the actual cost of the property will be what is recorded in the financials.