SMSF Real Property Best Practice
We administer a number of SMSFs that contain real property. Because of the nature of this asset we often encounter issues that have the potential to make processing and audit more difficult.
To avoid us annoying you for documentation and detail, particularly at year’s end, we thought we would share some best-practice tips:
- All invoices must be in the name of the SMSF or the trustee of the LRB Trust
- Payments should be made directly from the SMSF. Paying personally for invoices & reimbursing from the SMSF could require additional detail as it creates both contribution and acquisition of assets from related party issues and is not looked upon favourably by the Auditor or the ATO.
- Renovations cannot be completed by trustee/directors or family members unless they are also providing this service as part of their business. They must invoice for that work at market rate. Renovations completed at no cost is a deemed contribution based on the increase in value of the asset, not the value of the work performed. Any supplies should be dealt with as per the previous paragraph. They cannot be supplied by the related party.
- Full lease agreements must be signed with a copy provided to us.
- If the trustee is leasing the Business Real Property (remember that Residential property cannot be leased to related parties) distinguish between tenant fit out costs (which should be paid by the tenant) and landlord costs.
- Rent must be received by the SMSF & should not be adjusted outside of the terms of the lease without written notification and acceptance by both the tenant and the landlord.
- SMSF trustees must be prepared to enforce the terms of the lease, including eviction, even if it is a related party lease. If there are issues, including non-affordability of rent, please discuss these with us at an early stage. Do not wait until the end of the year accounts are being prepared.
Documents Required for Audit;
Newly acquired property
- Signed purchase Contract in full
- Invoices for on costs (conveyancer etc)
- Settlement statement
- Trust account statement
- Commission invoice (if any)
- Lease agreement in full
- If LRBA, we will require signing copies of the Trust & resolutions. If you need assistance establishing these documents please contact us.
- LRBA loan documentation, including loan contract, details of any fees paid as part of the loan settlement if not detailed in the contract and loan statement from inception
- Property valuation (if the market value has increased or decreased or upon request for audit purposes)
- Any invoices paid for the property (rates, water, upkeep, etc)
- Rental statement showing agency fees (if applicable)
- If we were not administering the SMSF in the year of acquisition we will also need many, or possibly all, of the items in the list above.
Please contact us if you need further clarification or assistance.