Asset valuation guidelines for SMSFs

There are important legal reasons why SMSF assets need to be valued regularly, including for:

• Preparing the fund’s financial accounts and statements
• Determining the total super balance of fund members (i.e. the balance of their accumulation and retirement phase accounts). Currently, if any super fund member’s balance exceeds $1.6 million, this affects their eligibility:

• • • to make non-concessional (after-tax) contributions
    • to use the bring-forward rule for the non-concessional contributions cap
    • for the government’s super co-contribution scheme
    • for the spouse super contributions tax offset

• Ensuring that members don’t exceed the $1.6 million transfer balance cap on funds that are moved from the accumulation phase to the retirement phase
• Determining fund member eligibility for carry forward concessional contributions
• Ensuring any assets are acquired or transferred on an arm’s-length basis (i.e. at market values) to either related or unrelated parties
• Calculating the market value of the fund’s in-house assets (which cannot be more than 5% of the market value of the fund’s total assets). In-house assets are investments with (or loans made to) fund members or their related parties
• Ensuring that any collectable or personal use assets of the fund are disposed of at current market values
• Determining the value of assets that support an SMSF fund member’s pension.

Event/Asset Valuation requirement Preparing SMSF financial accounts and statements All assets must be valued at market value based on objective data Calculating total superannuation balances Market valuations need to be done on 30 June each year based on objective data Collectables and personal use assets when sold or transferred to a related party The market value of these assets must be determined by a qualified independent valuer Transfers of other assets (excluding collectables and personal use assets) between related or unrelated SMSF parties All acquisitions and disposals must be made at market value based on objective data Determining the value of assets that support super pensions. The market value of these assets needs to be determined based on objective data on: the day the pension is started on 1 July during any year in which the pension is paid Testing the market value of the fund’s in-house assets (to ensure they don’t exceed 5% of the market value of the fund’s total assets). The market valuation should be done on 30 June each year and based on objective data Listed securities (e.g. shares and managed funds) These assets must be valued at their closing price on their approved stock exchange or market (e.g. the Australian Securities Exchange) on 30 June each year Unlisted securities (e.g. shares in private companies or units in unlisted trusts) To determine market value, fund trustees (or an independent valuer) need to consider the value of the assets in the company or trust, and/or the amount paid for the unlisted security Real property A valuation is not required each year, but it should be done if market conditions or other circumstances that may affect the property’s value have changed. For example, if renovations have been done to an investment property owned by the SMSF, or if the net income yield of a commercial property has changedThis valuation could be done via an independent appraisal or by researching recent selling prices of similar properties to use as comparable, objective valuation data.

Event/Asset Valuation requirement Preparing SMSF financial accounts and statements All assets must be valued at market value based on objective data Calculating total superannuation balances Market valuations need to be done on 30 June each year based on objective data Collectables and personal use assets when sold or transferred to a related party The market value of these assets must be determined by a qualified independent valuer Transfers of other assets (excluding collectables and personal use assets) between related or unrelated SMSF parties All acquisitions and disposals must be made at market value based on objective data Determining the value of assets that support super pensions. The market value of these assets needs to be determined based on objective data on: the day the pension is started on 1 July during any year in which the pension is paid Testing the market value of the fund’s in-house assets (to ensure they don’t exceed 5% of the market value of the fund’s total assets). The market valuation should be done on 30 June each year and based on objective data Listed securities (e.g. shares and managed funds) These assets must be valued at their closing price on their approved stock exchange or market (e.g. the Australian Securities Exchange) on 30 June each year Unlisted securities (e.g. shares in private companies or units in unlisted trusts) To determine market value, fund trustees (or an independent valuer) need to consider the value of the assets in the company or trust, and/or the amount paid for the unlisted security Real property A valuation is not required each year, but it should be done if market conditions or other circumstances that may affect the property’s value have changed. For example, if renovations have been done to an investment property owned by the SMSF, or if the net income yield of a commercial property has changedThis valuation could be done via an independent appraisal or by researching recent selling prices of similar properties to use as comparable, objective valuation data.

What is the ATO’s recommended approach?

The table below provides the ATO’s guidelines of how different types of SMSF assets should be valued for different types of events.

Who can value assets?

From the ATO’s point of view, it’s the valuation process that’s important rather than the person conducting it. SMSF trustees can generally value fund assets themselves provided they use objective and supportable data as the basis for their valuations. The exception is collectables and personal use assets where the services of a qualified independent valuer must be used.

Qualified independent valuers must be unrelated to any fund members and will likely have formal qualifications and/or professional knowledge and experience in valuing specific types of assets.

Fund trustees have the option of using professional valuers for their other SMSF assets. This may be worthwhile for assets that represent a significant portion of the fund’s total value, or where an accurate market value is difficult to determine.

SMSF auditors may also request an independent valuation of SMSF assets as a part of their normal annual audit. SMSF auditors must be approved by the Australian Securities and Investments Commission (ASIC).

The bottom line

Accurate asset valuation is an essential ingredient in ensuring your SMSF complies with super legislation. SMSF assets must be valued at their current market value, either by the fund’s trustees or independent professional valuers. The exception is the valuation of collectables and personal use SMSF assets, which must be valued by an independent professional. If SMSF trustees choose to value other types of assets themselves, they must base their valuation on objective data.

The information contained in this article is general in nature.