ATO, Property, SMSF

Property project checking a must

Property development

The progress of property developments in which SMSFs are invested need to be continually monitored to avoid compliance breaches.

A sector specialist has reminded practitioners to monitor the progress of a property development in which an SMSF is invested to ensure it does not deviate from the original strategy and plans that allowed it to satisfy the requirements of the Superannuation Industry (Supervision) Act and Regulations.

“[You need to know] is the progress of the development in line with the initial advice given that said the SMSF can be involved in this property development activity or make an investment in an entity that is doing the property development activity,” Accurium head of education Mark Ellem told attendees of the firm’s latest TechHub webinar.

Ellem pointed out the original advice may have specified certain conditions must be fulfilled to allow the SMSF to invest in a particular property development and an adviser or trustee cannot be sure these elements have been satisfied without properly monitoring the progress of the project.

“So [you need to determine whether] the facts or circumstances change as we progress through the actual development activity such that we’re now outside the original advice that gave us the thumbs up [for the project],” he said.

According to Ellem, should the original advice authorising an SMSF to invest in a property development be treated as a set-and-forget exercise, the approach could lead to significant compliance issues and adverse taxation outcomes.

Further, he reminded practitioners if they did not monitor the progress of the project, a comparison between the status at a particular time of the property development versus the original advice obtained will ultimately be performed.

“It will be looked at again potentially when the audit is being done and the auditor wants to make sure this is okay. So here we’ve got the advice and the auditor may read it and say ‘hang on, the advice says this, but you did that and I’ve got a problem [with it]’,” he said.

“And the ATO could do the same thing.”

The regulator issued Tax Payer Alert 2023/2 last week regarding potential compliance issues related to SMSF investments in property developments.

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