Auditors should flag any funds that invest in overseas property as documentation required by the ATO to support its valuation may not be easily available, an SMSF lawyer has advised.
DBA Lawyers special counsel Bryce Figot noted the ATO has clearly outlined its expectations for auditors in a page on its website, specifically Quick Code (QC) 45566. This states auditors must obtain written confirmation from the trustee and conduct a property title search to prove a charge has not been given over an asset.
Figot acknowledged getting this information may be difficult since some countries do not have a publicly accessible database for property ownership data.
“A written confirmation from the trustee representation letter is easy enough [to obtain], however, [in regards to] property title searches to check for encumbrance on real property, if it’s an overseas property, how do you do that?” Figot said during a webinar hosted by the Institute of Financial Professionals Australia today.
“How else are you going to satisfy QC 45566? This is the ATO’s minimum expectation and if it’s an overseas property, I just don’t know how you do it. If the fund’s buying a property overseas, I’m not sure you readily, if at all, can do title searches.
“It’s going to be very hard for overseas properties. They’re asking you to wear a lot of risk. If I were an auditor, I would be lodging an audit contravention report every year for a fund with overseas property and I’m telling you, it’s every year. They want a title search every year.”
He added he had not personally seen a case where the ATO singled out an auditor for not providing enough documentation on overseas property. However, because Australian laws limit an SMSF’s exposure to overseas property, auditors should be cautious when approving funds invested in this asset class.
“My concern is if you’re auditing a fund with overseas property, the ATO have this minimum expectation that they want you to check the property title search,” he said.
“Long story short, when people ask me: can my SMSF buy overseas real estate? I say the short answer is no. The longer answer is you might have an auditor lodging an ACR (auditor contravention report) every year.”
According to the latest ATO SMSF quarterly fund statistics report for March 2024, SMSFs have invested over $684 million in overseas residential and non-residential real property.
