.png)
Dear All,
I am currently auditing a Fund which has invested in an off the plan investment under a limited recourse borrowing arrangement in a single asset title.
The investment property has been subdivided and developed into two residential units. The two residential units are sharing the same title of the property. There are two valuation appraisals provided for each unit showing $500,000 market value at year end. However, noted that the Fund’s accountant only used one residential unit’s market value to reflect in the Fund’s books, instead of the combined two units’ values.
As per above, my questions are as follows:
Would the 2 residential units be considered as a single acquirable asset as per S.67 of SISA?
My understanding is that the market value should combine the market value of both units. Please advise your thoughts.
Thank you for assistance.
Sarah
Hi Sarah
If there are 2 units that are worth $500,000 each then the market value of the properties should be recorded as being $1,000,000 in the Fund's financial statements.
You note that the 2 units are on 1 title but that the properties have been subdivided. I would question if there was legal advice obtained in relation to the issue re the single acquirable asset rule.
The ATO has a ruling that gives guidance on the single acquirable asset at SMSFR 2021/1 "Self Managed Superannuation Funds: limited recourse borrowing arrangements - application of key concepts". My view is that if the 2 units are on the 1 title the 2 units cannot be separately dealt with so they would be considered to be a single acquirable asset. If each unit was on a separate title they could be dealt with separately and the 2 units would not be considered to be a single acquirable asset.
Example 11 of the ruling states:
"Example 11 - house built over two titles
73. The trustee of an SMSF enters into an LRBA where the single acquirable asset is a house which is built across two titles. Subsequently the house is relocated so that it stands on only one of the titles.
74. The arrangement ceases to satisfy the requirements of the LRBA provisions. The relocation of the house results in the asset under the arrangement no longer being a single object of property. Following the relocation there are two separate assets, the block of land with the house and a vacant block of land, that could be dealt with separately. If the borrowing is maintained the trustee of the SMSF will contravene subsection 67(1)."
If any other forum members have a view on this question, please let the forum know.
Thanks
The Auditors Institute