Hello Nagarajan
Thanks for the question.
You are correct that the capital gain should have been accounted for in the year that the contract regarding the sale of the investment property was entered into – as per section 104-10(3)(a) of the Income Tax Assessment Act 1997.
In this scenario the contract was apparently entered into on 23 June 2022 – placing the CGT event in the 2022 income year, despite the fact that settlement occurred on 8 August 2022 (in the 2023 income year).
Contract of sale
It seems odd that the contract of sale cannot be located. Even if the trustee has lost their copy, presumably they could ask for the lawyers/conveyancers that assisted with the sale, or the real estate agency, to be provide a copy?
Realestate.com.au
At the moment there is an assumption – in the absence of seeing a copy of the contract, the CGT event occurred when the sale was reflected on Realestate.com.au.  Whilst that is likely to be reasonable inference, we cannot be certain that a contract was entered into on 23 June 2022.
Income tax liability
Whilst it is not specifically addressed in the question, it is assumed that the net capital gain from the CGT event has been included in the 2023 income year’s tax return?
Depending on a variety of factors, such as the cost base, proceeds, time the asset was held, whether the fund is wholly or partly in pension phase – this may have a material impact on the fund’s income tax expense – and therefore give rise to a qualification of Part A of the Audit Report, if we cannot be certain as to which year the CGT event is properly referable to.
Way forward?
My thoughts are to pursue the trustee/accountant for the fund, for the contract of sale.
Determine if there is a risk that the fund’s income tax expense might be materially misstated.
Depending on the responses you received, there could a variety of potential actions that the auditor can take, from making reference to this matter to the trustee in the Management Letter, to qualifying the Audit Report, if this matter is material to the income tax expense, for the 2023 year.
Would be happy to hear the thoughts of other auditors on this matter.
Best regards
The Auditors Institute