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Nov 14, 2022

Capex and missing invoices

in SMSF Technical Forum

Hi, have a fund with an investment property. Property is worth about $850,000.

The member is a builder and paid about $60,000 worth of expenses in relation to the property for capital improvements, and later withdrew this amount from the funds bank account. The trustee has provided invoices to the value of about $40,000, the remaining $20,000 no invoices are available. The trustee wants to add the entire $60,000 to the cost base, despite not having documentation for it all.

The issues I believe we have here are:

Potential 35AE issue because the trustees are not keeping records that assist in correctly explaining the funds performance/position.

The fund has acquired assets from a related party - S66 breach.

What do we think in terms of issues and qualification and ACR considerations?

I am thinking, Part B qualification on S66, no ACR as under $30k, advise client in management letter to take better care with paperwork etc taking due care under S52.

Thoughts?

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Nov 16, 2022

Hi T

Yes I agree there is possibly a breach of sections 35AE & 66 of SIS as you have noted.

I would also be reviewing the invoices that you can obtain and make sure these are in the name of the Fund. If the invoices are in the name of the builder and not the Fund this may be a breach of section 66 re acquisition of assets from a related party and if more than $30,000 may have to be reported in the ACR.

If other members have a view on this query please let the forum know. There may also be scope to consider materiality and if you are of the view that the breach is not material then it may not warrant a qualified audit report.

Thanks

SMSF AAA