ATO Real Property Valuation Guidelines for Self Managed Superannuation Funds (SMSFs)
In conjunction with a recently issued version of their ‘Valuation guidelines for self-managed super funds’, the ATO has significantly ramped up their compliance activity to support evidence for valuations of assets in SMSF’s.
For the 2012–13 and later income years, trustees of SMSFs must value all fund assets at market value when preparing their fund’s financial statements and accounts each year. This is to comply with the superannuation regulations.
Prior to this time, trustees were only required to value assets at market value if the fund was paying a pension or held certain assets used by related parties. Industry practice was to value other fund assets every three years. This practice is no longer tenable.
What are SMSF Auditors responsible for?
The role of the SMSF auditor is not to value fund assets or to determine their market value. Approved SMSF auditors are responsible for:
- checking and verifying that fund assets have been valued correctly
- obtaining evidence to support the determined market value
- assessing and documenting whether the basis for the valuation is appropriate given the nature of the asset.
- where there is insufficient evidence, they must consider modifying the SMSF independent auditor’s report and lodge an auditor contravention report.
For many assets such as listed shares and cash, the valuation process is straightforward; however, in the case of real ‘brick and mortar’ property, the process may be more complex.
Do I need to use an independent valuer to value by SMSF property?
SMSF trustees may wish to consider using a qualified independent valuer when valuing real property, especially where the property’s value represents a significant proportion of the fund’s value.
If you choose to do so, you are not required to obtain an external valuation each income year. However, you still need to ensure the external valuation can be used to support the market value you have used when preparing the fund’s financial accounts and statements every year.
If an external valuation has become materially inaccurate or a significant event has occurred that may have affected the value of the property since it was last valued. In this case, you should no longer rely on it and obtain a new valuation or other evidence to support your valuation.
What supportive data should be considered when valuing SMSF properties?
Unless the fund has recently purchased the property, you should consider a variety of sources to substantiate the market value of the real property. When valuing real property assets, to prepare the fund’s financial accounts and statements, the valuation may be undertaken by anyone as long as it is based on objective and supportable data.
When valuing real property, a number of relevant factors and considerations should be considered; these may include:
- the value of similar properties and recent comparable sales results
- the amount that was paid for the property in an arm’s length market – if the purchase was recent and no events have materially affected its value since the purchase
- independent appraisals from a real estate agent (kerbside)
- whether the property has undergone improvements since it was last valued
- the rates notice (if consistent with other valuation evidence)
- for commercial properties, net income yields (not sufficient evidence on their own and only appropriate where tenants are unrelated).
Generally, it is not sufficient for valuations to be based on only one item of evidence in the above list.
A valuation undertaken by a property valuation service provider, including online services or real estate agents, would be acceptable. However, the valuation must stipulate the supportable data. For example, in the case of a real estate agent appraisal or online report, the valuation should list the comparable sales it relied on.
Will a kerbside valuation be sufficient?
A kerbside valuation from a real estate agent will be sufficient, however the ATO have recently stated that “Real estate agent appraisals stating what the property is likely to sell for based on sales in the area, without listing details of those sales, would generally not on its own be sufficient and appropriate evidence. The evidence should also support a market value for the property as close as possible to 30 June, especially where the market is potentially volatile.”
This means that a kerbside valuation report will need to include a list of properties similar in nature to that owned by the fund with their respective sale prices.
What is the SMSF trustee’s responsiblity in the valuation?
In accordance with these guidelines, it is the SMSF trustee’s responsibility to provide objective and supportable evidence to the auditor to support the valuation of a fund asset. This includes providing all relevant documents requested explicitly by the auditor.
How Morrows can help?
If you have any questions regarding your SMSF compliance requirements, please reach out to the Morrows Superannuation Consulting Team. Our team of experienced advisors are equipped to provide you with the right advice to meet your specific needs.
Want to learn what Tax Minimisation Strategies you should consider in 2023?
Download our two Tax Minimisation Guides today. These comprehensive guides outline over 30 additional tax saving strategies to help reduce your personal or business tax bill this financial year. Fill in your details below, to gain access to these guides for free.