If your SMSF assets include direct property, you will incur two kinds of expenses:
- Operating costs, such as agents commissions, advertising fees, repairs and maintenance, cleaning, body corporate costs, utilities costs, travel, insurance, etc.
- Costs that can be capitalized to impact on the value of the asset (Property acquisition costs, building, renovations and other improvements, fittings and fixtures, etc. and depreciation)
It is important to correctly allocate each incurred expense to ensure that the asset value correctly reflects the costs of acquisition, improvement, and depreciation and that operating costs are correctly coded to an appropriate Expense Account.
Capitalized costs should be allocated to Investment Account 1-1170 or to one of the 1-1170-nn accounts.
Operating costs should be allocated to Expense Account 5-1150. When entered as Expenses, these costs can be further categorized by selecting from a drop-down list:
To record an expense relating to a property asset:
- Click the EXPENSES tab and click ADD NEW EXPENSE.
- Select the account that owns the asset (Fund, or a member account if this is a segregated asset)
- Select the bank or receivable account from which the payment was made
- Enter the date of the payment
- Type a clear description, clarifying what the payment was for
- In the Allocate To field, select Account 5-1150 Other Deductions
Mclowd will now display the drop-down list shown above. Select the appropriate expense type.
In the For Asset field, select the property for which this expense was incurred.
Enter the total cost and click ADD EXPENSE.
NOTE: For guidance to enter costs deducted from rent income, please see “How do I… Post a Receipt of Rent for an Investment Property”
To enter Capitalized costs for a property asset:
Click the ASSETS tab.
If this asset is already listed in your Fund’s assets list, locate select the Asset in the list and click on it.
Mclowd displays details of the selected asset. Note the Acquisition cost details in the Direct Property section (at the bottom). Mclowd displays the address, purchase date and CGT date, then lists the various payments (in this case only one) made that contributed to the asset value.
Click ADD ANOTHER ITEM.
Mclowd displays a blank row for you to enter another capital purchase.
Enter the date of purchase and CGT date.
NOTE: The CGT date is the date the ATO deems your Fund became the legal owner of the asset. This may be different from the actual purchase date or payment date in some cases. If your fund buys land or property, the CGT date is the date on the contract, not the settlement date or date payment was made. This applies even if the contract provides for delayed settlement.
If property is purchased subsequent to securing an option, the CGT date for both buyer and vendor is the date of the contract of sale of the property, not the date of any option agreement.
In situations where there is no contract, the CGT date is the date on which the change of ownership actually occurs.
Where property is acquired or disposed of after a death, in accordance with the terms of a Will or Binding Nomination or a decision by a Superannuation Fund Trustees, the CGT is the date of death.
Select the cost type from the drop-down list:
Type a description and enter the amount paid.
Select the payment account:
If the asset is a segregated asset owned by a member account and an addition/improvement was paid for via a contribution from a member, select the appropriate contributions account. The payment will be correctly recorded as a member contribution and will add to the member’s account balance. Note, however, that capitalized costs should only ever by paid for by member contribution if the asset is owned by the member account to which the contribution is paid. It would be inappropriate for a member contribution to be used to enhance the value of an asset owned by the Fund or a different member account.
You can use this facility to enter depreciation by selecting one of the 5-1070-nn accounts listed in Expense Accounts. Mclowd will automatically create a balancing entry to a 1-1170-nn deprecation account.
Click UPDATE ASSET to save, or ADD ANOTHER ITEM if there are further capitalized costs to be recorded against this asset.
Note that the total asset value has now increased by the amounts entered as costs for each of the 1/7/2017 improvements.
When all capitalized costs for this property have been entered, click UPDATE ASSET to save the changed record. Note that you can return to this asset at any time to add further capitalized costs.
If you to Accounting and inspect accounts 1-1170-04 Depreciation and 5-1170-04 Depreciation (expense), you will note Mclowd has correctly Debited the expense account 5-1170-04, increasing the costs associated with owning this property, and credited the investment account 1-1170-04, reducing the asset value of the property.
Similarly, account 1-1170-02 shows an asset value of $8000, reflecting the investment in a new kitchen for the property.