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Hi
The SMSF bought a residential property by LRBA and then used its own funds to convert the property into short term rental accommodation (improvements and furnishing). The SMSF spent about $110k, some money was spent from credit card of members and then reimbursed from the SMSF, some is not even reimbursed. There is about 10k of expenses spent personally by CC or cash and not reimbursed, also there are some invoices in the member name and some expenses have no invoices just the CC transactions in the CC statement.
My question is :
Has the property identity changed?
How should we go about the expenses for which the invoices are in the member name, no invoices or just CC transaction history only ?
Hi Gulshan
Re the payments with no invoices as a minimum you should get a declaration from the trustees and also raise it as a management letter issue.
Thanks
SMSF AAA
Hi Gulshan
It seems that the property has not changed identity based on the details you have provided. The property was purchased as a residential property and still is a residential property after the improvements.
The ATO has released SMSFR 2012/1 - "Self Managed Superannuation Funds: limited recourse borrowing arrangements - application of key concepts".
As a guide the ruling gives an example that supports the above view:
"A residential house is acquired under an LRBA and is rented out for a number of years. As the area is now a real estate hot spot a decision is taken to renew the kitchen which, although functional, is significantly out of date and showing wear and tear.
The design of the kitchen is improved and modern equivalent, rather than superior, materials and appliances are used.
The changes made do not significantly improve the state or function of the asset as a whole."
I recommend you consider what improvements have been made and refer to the ATO ruling.
In relation to the invoices not paid by the Fund these should be treated as a contribution or recorded as a liability and be repaid. The invoices should be reissued to the Fund or a declaration should be signed stating that these invoices / payments belong to the Fund.
Thanks
SMSF AAA