Depreciation, what’s that all about?

Background

Danny M, an adviser, approached Super Plus in December 2009 to take over a fund from another administrator. The fees charged by the other administrator were relatively high and the adviser was having difficulty obtaining information about the procedures and information requirements for his client to commence a pension in their SMSF.

Super Plus Review

We reviewed the 2009 financial statements and other information provided and proceeded to set up the financial, member and investment history in our software.

We noted that the fund had four commercial properties, and that a capital allowance deduction had been claimed in the 2009 tax return. Information relating to the costs of construction relating to the properties was not provided to us by the previous administrator. When questioned how they calculated the deduction amount, the reply was, “they claimed the same amount as the previous year”.

We asked the adviser to assist with trackig down a copy of the original calculations, so we could determine the basis of the deduction. On review of the information received we determined that the deduction over the period of the previous four years had in fact been incorrect.

Super Plus Actions

  1. The adviser provided us with information relating to the pension to be commenced.
  2. We calculated the correct capital allowance deduction amounts, and then calculated the shortfall of the deduction over the period to 30 June 2009.
  3. We lodged amendments to the tax returns over the four year period, and updated the fund records to take into account the tax refunds due as a result of the amendments.
  4. We processed fund transactions up to 31 December, to calculate the pension purchase price and the tax components of the pension.
  5. We prepared the pension commencement documents and minutes.

Results

The trustees, and the adviser, were thrilled that we had detected the error in the calculation of previous capital works deductions. The tax refund received from the amendments, more than offset the cost of calculating the correct deduction over the period.

The pension commencement process had been completed in an orderly manner, and was documented correctly.

The fund’s transactions are now processed on a regular basis, with any questions being raised with the trustees and dealt with on a timely basis.

Ongoing administration fees paid by the fund are lower than previously paid, even after taking into account that the fund is now processed and reconciled monthly.

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