SMSF Property Valuation Checklist for Trustees

ATO Real Property Valuation Guidelines for Self-Managed Superannuation Funds (SMSFs)

Alongside a recently issued version of its ‘Valuation guidelines for self-managed super funds’, the ATO has significantly ramped up compliance activity to support evidence for SMSF asset valuations.

SMSF trustees must report all fund assets at market value as at 30 June each year when preparing the fund’s financial statements. The ATO continues to focus on valuation compliance, particularly where property represents a significant proportion of fund assets.

What are SMSF Auditors responsible for?

Approved SMSF auditors are responsible for:

  • assessing whether fund assets have been reported at market value
  • reviewing the documentation supporting the adopted value
  • determining whether the valuation methodology is appropriate for the nature of the asset
  • considering audit qualifications or contravention reporting where sufficient supporting documentation is not available.

For many assets, such as listed shares and cash, the valuation process is straightforward; however, direct property investments may be more complex.

Do I need an independent valuer for my SMSF property?

An independent valuation is not automatically required every year, but SMSF trustees should generally expect to obtain updated valuation evidence each year to support the property’s market value at 30 June.

An independent valuation may be particularly appropriate where the property represents a significant proportion of the fund’s assets, is difficult to value, or has undergone significant changes in the property or market.

Do not simply carry forward a previous valuation without considering whether it still accurately reflects the property’s current market value. If circumstances have changed, or the previous valuation is no longer reliable, you must obtain updated valuation evidence.

When is an independent valuation required?

An independent valuation is particularly advisable when:

  • The property is a large proportion of fund assets
  • Related-party transactions occur
  • The property is unique or difficult to value
  • The market has changed significantly
  • The auditor requests additional evidence
  • Pension commencements or commutations are involved
What information should support an SMSF property valuation?

Unless the fund has recently purchased the property, consider a variety of sources to substantiate the real property’s market value. When valuing real property assets to prepare the fund’s financial accounts and statements, anyone may undertake the valuation as long as it is based on objective, 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.

Valuations prepared by property valuation providers, online valuation services and real estate agents may be acceptable, provided they clearly identify the information and comparable sales used to determine the value.

SMSF Property Valuation Checklist

Before finalising your SMSF’s annual accounts, consider whether you have retained sufficient evidence to support the property’s market value as at 30 June.

  • Recent comparable sales evidence for similar properties in the area
  • A current real estate agent appraisal or independent valuation report (where appropriate)
  • Supporting documentation showing how the valuation was determined
  • Evidence of any significant renovations, improvements or changes to the property
  • Commercial lease agreements and rental information (for commercial properties)
  • Documentation supporting any online valuation reports used
  • Records demonstrating the adopted value reflects market conditions as close as possible to 30 June
  • All valuation evidence readily available for your SMSF auditor

Remember: Trustees are responsible for determining and supporting the market value of SMSF assets. Keeping clear, comprehensive records throughout the year can help streamline the audit process and reduce the risk of valuation-related compliance issues.

Will a kerbside valuation be sufficient?

While a real estate agent appraisal may be acceptable in many circumstances, trustees should ensure it includes sufficient supporting information, including recent comparable sales and the methodology used to determine value.

The ATO states 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 a kerbside valuation report must include a list of properties similar to those owned by the fund, with their respective sale prices.

What is the SMSF trustee’s responsibility in the valuation?

Ultimately, SMSF trustees are responsible for ensuring the values reported in the fund’s financial statements reasonably reflect market value and can be substantiated if the SMSF auditor requests it.

Trustees should avoid carrying forward the same property value year after year without reviewing supporting evidence. If market conditions or property characteristics have changed, obtain additional valuation evidence. The ATO has increased scrutiny of SMSFs reporting unchanged property values over extended periods.

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 is equipped to provide the right advice to meet your specific needs.

 

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