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Re: Receipts for small items in fully furnished apartment owned by SMSF

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A number of small items for fully furnished apartment were bought from places like Woolworths and Big W. Things like cutlery for kitchen, cleaning products for laundry etc. All items are itemised on cash register receipt but after audit it was highlighted that the receipt for these items aren't in the name of the Super fund. Hard to provide this for small items bought from Woolworths. 
To meet the Sole Purpose Test S62 and Seperation of Assets R4.09A can I provide a Stat Dec or similar doc with the receipts stating that the items are for the use in the apartment?

appreciate any help with this. Thanks

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Most helpful response

Taxicorn Registered Tax Practitioner

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A number of small items for fully furnished apartment were bought from places like Woolworths and Big W. Things like cutlery for kitchen, cleaning products for laundry etc. All items are itemised on cash register receipt but after audit it was highlighted that the receipt for these items aren't in the name of the Super fund. Hard to provide this for small items bought from Woolworths. 

 

These are expenses reimbursed to trustees.

 

Consider this example in   

SMSFRB 2020/1

 

Example 4 - Property development - SMSF engages related party business

84. Tahini is 45 years old. Tahini's SMSF is undertaking the development of property on land owned by her SMSF. Tahini also owns and operates a carpentry business. As part of the property development, Tahini has engaged her business to provide carpentry services. As part of the terms of engagement it was agreed that the SMSF would pay for materials to be used in the property development but that all tools and related costs were to be borne by the business.

85. During the course of the development, over a five-year period, Tahini buys materials to be used in the development and tools and equipment for her business on her credit card. The business does not invoice the SMSF for the materials and instead the SMSF's records show payments directly onto Tahini's credit card during the period. Tahini also charged personal expenses against the credit card. Tahini then pays the outstanding balance of the credit card using funds from the SMSF.

86. In these circumstances the Commissioner may consider that there has been a breach of the payment standards as the SMSF has made payments against Tahini's personal credit card in circumstances that don't clearly evidence that the payments were solely related to the SMSF's property development investment.

87. If so, Tahini will be assessed personally for these amounts, which are now considered assessable income,[57] in her tax return.

88. The SMSF trustee may also have contravened section 66 of the SISA by acquiring an asset from a related party, as they have in fact acquired the materials from Tahini after she purchased them personally.

https://www.ato.gov.au/law/view/document?docid=SRB/SRB20201/NAT/ATO#H79

 

The problem here is the lack of specific documentation  -  not the fact that invoices were not in the name of the SMSF.

 

All SMSF properties do cash receipts to some extent, but the important thing is to do a proper reimbursement.

 

To meet the Sole Purpose Test S62 and Seperation of Assets R4.09A can I provide a Stat Dec or similar doc with the receipts stating that the items are for the use in the apartment?   appreciate any help with this

 

You could make a declaration that the items were applied solely to the property.

 

It is important that the payment is a reimbursement and not a supply  -  because that could be an acquitions of non-permitted assets from a related party.  This was dealt with at the NTAA super school a few years ago.

 

 

 

 

 

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Most helpful response

Taxicorn Registered Tax Practitioner

Replies 3

A number of small items for fully furnished apartment were bought from places like Woolworths and Big W. Things like cutlery for kitchen, cleaning products for laundry etc. All items are itemised on cash register receipt but after audit it was highlighted that the receipt for these items aren't in the name of the Super fund. Hard to provide this for small items bought from Woolworths. 

 

These are expenses reimbursed to trustees.

 

Consider this example in   

SMSFRB 2020/1

 

Example 4 - Property development - SMSF engages related party business

84. Tahini is 45 years old. Tahini's SMSF is undertaking the development of property on land owned by her SMSF. Tahini also owns and operates a carpentry business. As part of the property development, Tahini has engaged her business to provide carpentry services. As part of the terms of engagement it was agreed that the SMSF would pay for materials to be used in the property development but that all tools and related costs were to be borne by the business.

85. During the course of the development, over a five-year period, Tahini buys materials to be used in the development and tools and equipment for her business on her credit card. The business does not invoice the SMSF for the materials and instead the SMSF's records show payments directly onto Tahini's credit card during the period. Tahini also charged personal expenses against the credit card. Tahini then pays the outstanding balance of the credit card using funds from the SMSF.

86. In these circumstances the Commissioner may consider that there has been a breach of the payment standards as the SMSF has made payments against Tahini's personal credit card in circumstances that don't clearly evidence that the payments were solely related to the SMSF's property development investment.

87. If so, Tahini will be assessed personally for these amounts, which are now considered assessable income,[57] in her tax return.

88. The SMSF trustee may also have contravened section 66 of the SISA by acquiring an asset from a related party, as they have in fact acquired the materials from Tahini after she purchased them personally.

https://www.ato.gov.au/law/view/document?docid=SRB/SRB20201/NAT/ATO#H79

 

The problem here is the lack of specific documentation  -  not the fact that invoices were not in the name of the SMSF.

 

All SMSF properties do cash receipts to some extent, but the important thing is to do a proper reimbursement.

 

To meet the Sole Purpose Test S62 and Seperation of Assets R4.09A can I provide a Stat Dec or similar doc with the receipts stating that the items are for the use in the apartment?   appreciate any help with this

 

You could make a declaration that the items were applied solely to the property.

 

It is important that the payment is a reimbursement and not a supply  -  because that could be an acquitions of non-permitted assets from a related party.  This was dealt with at the NTAA super school a few years ago.

 

 

 

 

 

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Replies 2

Thanks for your prompt reply. Your info makes sense. The items didn't even need reimbursing as I used the Super funds bank debit card. The issue with the Auditor is the receipts are not in the name of the SMSF or the corporate Trustees name. The receipts are just cash register receipts not in anyone's name. Even though I have married up the receipts with the bank statements. 
From the Auditors report: 

"If in some unavoidable situation, the tax invoices cannot be issued in the name of your fund, the trustees may document and provide a properly executed Declaration of Trust to confirm the payments are made for the superfund solely..
Please provide a properly signed and executed declaration of trust if applicable."

I have looked online for a Declaration of Trust form or an Acknowledgment of Trust and these are over $200 to set up. Seems a bit over the top for a couple of hundred dollars of kitchen goods. 
That's why I thought a Stat Dec with a statement like you said that these items were applied solely for the property should be sufficient 

Thanks again for your imput

cheers daz

 

Taxicorn Registered Tax Practitioner

Replies 1

Thanks for your prompt reply. Your info makes sense. The items didn't even need reimbursing as I used the Super funds bank debit card. The issue with the Auditor is the receipts are not in the name of the SMSF or the corporate Trustees name. The receipts are just cash register receipts not in anyone's name. Even though I have married up the receipts with the bank statements. 
From the Auditors report: 

"If in some unavoidable situation, the tax invoices cannot be issued in the name of your fund, the trustees may document and provide a properly executed Declaration of Trust to confirm the payments are made for the superfund solely..
Please provide a properly signed and executed declaration of trust if applicable."

 

Ask the auditor for ATO instructions that say D of T needs to be done for toasters and lamps.

 

D of T necessary for assets that cannot be registered in fund name directly, but not for expenses. 

Technically, a toaster is an asset, but it is 100% depn  -  so written off anyway.

 

Also, D of T should only be done on the day the asset is acquired  -  if done later, the proper thing is an Ack of T.


That's why I thought a Stat Dec with a statement like you said that these items were applied solely for the property should be sufficient 

 

Not a stat dec,  just a declaration  -  you could write it on the copy of the receipt.

"Used exclusively in SMSF rental property at  ....."  +  signed + dated.

 

I have SMSF clients that build rental properties that build on vacant land, then rent to arm's length tenants.

Think of all the material spend going on there.  Thinking it through, material that is attached to the land (in a building) is automatically covered by the D of T executed when the land was purchased.  

 

In any case, as an SMSF auditor I would say that $ 200 was not a material asset/expense.

Especially, when you look at the amount of uncertainty surrounding the appraisal of the property market value.

 

 

 

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Thanks Bruce4tax

you are a very helpful community member

cheers