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Peter

Sep 16, 2021

Property cost base post subdivision

in SMSF Technical Forum

A fund purchased a property several years ago for $900k. The property has since been subdivided into two lots of equal size. However, Lot A retained the building existing on the property. When accounting for the split, the fund has allocated the cost base 50/50 between the new assets. However, income tax law states that the apportionment must be reasonable. Given the building, it would seem a 50/50 split overstates the cost base of Lot B.

Overall materiality is $500k, therefore any misstatement in income tax expense is unlikely to be material to the financial statements. There also doesn't appear to be a breach of the SIS Act. The issue is going to be communicated to the trustees through the completion letter. Are there any further reporting requirements in respect of this matter?

2 comments

Comments (2)

Brian Roughley

Sep 23, 2021

There will be an income tax issue at the time any capital gain is realized on the sale of a lot.

THE AUDITORS INSTITUTE

Sep 16, 2021

Hi Peter

I agree with your approach to raise it in the completion letter. I agree also that I cannot see it being a breach of the SIS Act.

I do not believe there are any further reporting requirements re this matter. You could consider raising it in the audit contravention report using the "professional judgement" criteria. Given at this point it is just an incorrect apportionment of cost from an accounting perspective there is arguably no reason for it to be reported in the ACR.

Thanks

SMSF AAA