Issue

How do I correctly process a property disposal across multiple financial years?

Background

When processing the sale of property across financial years, some of the capital expenses (e.g. legal fees, settlement agent fees) will not be finalised until settlement. If they are capitalised in the Property sale settlement event in the later financial year, these capitalised items are not being applied to the total cost base. 

In this video we take you through a worked example of processing a purchase across financial years in Class:

Resolution

Use a Custom Holding Account to temporarily park the settlement receipt.

To ensure the correct balance is accrued, we recommend waiting until the settlement of the property has occurred so the correct amount can be accrued as the settlement balance.

Step 1: Process the Property Sale Deposit event

Step 2: Process the Property Sale Settlement event

Step 3: Use a Custom Holding account to temporarily park the settlement receipt

Step 4: Depreciation worksheet

Step 5: Match transactions

Worked example

An SMSF sold a property for $1,100,000, per the below timeline:

• On the contract date of 11 April 2021 (FY21), $110,000 was received as the deposit
• On 01 August 2021 (FY22), settlement proceeds of $982,000 were received which included deductions for the following expenses:
• $1,579 on legal fees, and
• $6,421 on agent selling fees 

Step 1: Process the Property Sale Deposit event

Navigate to Fund Level > Transactions > Investment - Sell > Property Sale Deposit 

1. Enter the Contract Date as at 11 April 2021 
2. Enter $110,000 as Deposit
3. Enter $990,000 as the Remaining Amount
   
   

Step 2: Process the Property Sale Settlement event 

Navigate to Fund Level > Transactions > Investment - Sell > Property Sale Settlement 

1. Enter Settlement Date using 30 June 2021 (not the real settlement date)
2. Record capitalised expenses (tick ‘Capitalise’ for these Disbursements) 
   
   

Step 3: Use a Custom Holding Account to temporarily park the settlement receipt 

Refer to user guide Custom holding account for detailed steps of creating a Custom Holding Account,

Navigate to Fund Level > Transactions > Browse Bank Statement

1. Select the Custom Holding Account from the drop-down list
   
   
2. Click on Add button to add a cash in transaction to record the settlement amount receivable as at 30 June 2021 
   

   Navigate to Fund Level > Transactions > Match Transactions
   

3. Match the cash transaction with step 2

Step 4: Depreciation worksheet 

Navigate to Fund Level > Investments > Depreciation Worksheet

1. Click on Create New next to the property capital improvement above and capitalised expenses to add them to the depreciation worksheet
   
   

   When capitalising expenses ensure that the date used is the day before disposal of the property (note the date will default to the settlement date entered so you will need to update it). In this case the date should be 10 April 2021
   
   

2. Click on Sell all. Proceeds will then be allocated to each item to correctly calculate the Capital Gain or Loss
   
   
   
   
   You can run a period update for the 2021 financial year and review the Statement of Financial Position
   
   

Step 5: Process a cash out under the Custom Holding account (in 2022 financial year)

In the 2022 financial year when the settlement cash amount is received in August,

Navigate to Fund Level > Transactions > Browse Bank Statement 

1. Process a cash out event under the Custom Holding account (ensure the remaining balance is $0)
2. Match it with the actual cash received