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BACKGROUND
Brown smsf is a sole member fund being Ray Brown. Ray bought via an Online website, 50 shares in SpaceX for $25,000. This website was not a trading platform line COMSEC. Just an everyday Online / Shop website. The smsf got issued with a share certificate for the 50 SpaceX shares. The smsf sent / paid the $25,000 to a nominated bank account. The funds were transferred / payment made.
Guess what? On further investigation it was found the share certificate was not real. They had been scammed. They reported the events to the smsf bank and Queensland Police Department hoping they would be able to trace the scammers and retrieve the money. The trustees have official correspondence with QLD police advising of the report lodged and action they are taking. Both the bank and Qld police have had no luck in retrieving the money. We do not believe that the trustees have benefitted in any way via this transaction. They have been victims as they did not do enough diligence in checking out the seller or use a normal trading platform.
QUESTION 1
I believe we have a contravention here and this needs to be reported to ATO. Any advice what sections I should be contravening and what basis I will report to ATO? Your thoughts on this matter.
QUESTION 2
The $25,000 is gone, it is not expected to be recovered. This is evidenced by correspondence with police and results to date. No recovery of funds is expected. Presently this investment sits on the balance sheet as an Asset $25,000 with negative Market Movement of $24,999.99, leaving market value of 1 cent. In the 2023 year the accountant wants to recognize the Capital Loss and then have it as a carry forward capital loss for future years. Is it right to record this as a Capital Loss? What evidence should I advise the accountant to have, so as to recognize this future Capital Loss. If any money is recovered it will then be reported as income on receipt.
Await your advice on above.
Hi Campbell
I have been involved with a similar issue.
You have not advised if it is a first year Fund or if it is a material breach so this may have an impact on the audit report you issue & whether an ACR (audit contravention report) is required.
If the amount involved was material and you did not have sufficient documentation re the scam you may need to issue a disclaimer of opinion in your financial audit report. As an example:
"We have been advised the Fund Trustee has been scammed and as a result, has lost all of its (or part of its) assets. Although the Trustee has informed us of the background information to this scam, we are of the view that we do not have sufficient evidence of the scam occurring. Hence, we provide no opinion on the Fund (or part of its) assets."
Re if there has been a compliance breach I would consider if there has been a breach of SIS Reg 4.09 (investment strategy) or SIS Reg 8.02B (assets at market value).
In the example I was involved in the ACR was lodged re Reg 8.02B that stated:
"We have been advised the Fund Trustee was involved in a fraudulent scam resulting in the loss of ... assets ........ As we have not received sufficient audit evidence regarding this scam it is difficult for us to provide an opinion on the market value of the Fund's assets."
If there has been a contravention of SIS that is considered unrectified the trustees should consider voluntary disclosure to the ATO using the form at:
https://www.ato.gov.au/assets/0/104/2244/2335/cad3fc43-b044-47b5-8176-1ba8706417bb.pdf
Yes my understanding is that a loss as a result of fraud re an investment is non deductible but can be treated as a capital loss. Re paperwork, yes a copy of the police report and a statement from trustees as to what happened should be sufficient.
Thanks
SMSF AAA