Hi all,
My SMSF auditor is about to contravene my SMSF - is there anything I can do?
The situation is that I own a Commercial Property (restaurant) in my own name, rented out to 3rd party Tenants, and in FY24 I transferred a portion of it into my SMSF:
- The Transaction was done at a valuation determined by a professional, independent valuer.
- The Transaction was processed by a Conveyancer, and the Title clearly shows my SMSF Corporate Trustee as a co-owner.
- My SMSF Corporate Trustee and I co-own the Commercial Property as Tenants-in-Common (as stipulated in the property Title).
- I did not exceed any concessional or non-concessional contribution limits.
- The tenant is a 3rd party restaurant operator that have been operating at the site for over 10 years. I purchased the property 7 years ago, therefore inheriting the lease.
The issue is that my Auditor thinks that I've contravened the In-House asset rules. She also noted that I may have breached the Separation of Assets rule, because she's not sure that the Tenants-In-Common structure is allowable. She mentioned I may need to convert to a Unit Trust structure to resolve this issue.
Since her initial assessment, we've had a couple of phone calls, and I've pointed her in the direction of several documents, including:
- SISA Act 1993, Section 71(1)(i) - which states that Commercial Property owned by the superannuation fund and a related party as tenants in common is not considered an in-house asset
- SMSFR 2009/1, which states that business real property of a related party of an SMSF acquired at market value by an SMSF trustee or investment manager does not contravene the prohibition on related party asset acquisitions
- The ATO website, which states that "Business real property is an exception to the in-house asset and related party acquisition rules": https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/investing/restrictions-on-investments/business-real-property
Despite all this, she still wasn't sure, and in October informed me via email that "I have contact the ATO as I would like a Non-Binding Auditor Advice from them regarding the property". In particular, she seems to be uncertain about the allowability of the Tents-In-Common structure: "My issue I would like confirmed is that the ATO have no issue with the tenants in common situation, under the separation of Assets R4.09A"
Fast forward 3 months, and this morning, I wake up to the following email: "The ATO have not come back with any response since my queries across Oct 2024 and into the new year. Therefore, I will contravene the fund in regards to this matter. They will then be forced to respond in regards to the matter and determine if the setup of the investment structure is/ is not contravening the In House Asset restrictions."
I understand she's the auditor - so I'm not trying to change her mind. Just feeling stuck since I feel like my structure is allowable, and a contravention is unnecessary.
Is this a common practice? For auditors to contravene a fund due to being uncertain, and leaving the client to sort it out with the ATO?
Is it bad for my SMSF if the auditor contravenes my fund, even if the ATO decides it's fully compliant afterwards?
Is there anything I can do to minimize the "damage" to my SMSF? Or am I worrying over nothing? (assuming the ATO does eventually determine that my SMSF is fully compliant)
Any thoughts/advice would be greatly appreciated. Tanks in Advance.
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