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SMSF trustees are required to regularly value their fund’s assets as a part of ensuring compliance with Australia’s super legislation. Assets must be valued at market value, based on appropriate evidence and data. The Australian Taxation Office (ATO) can review these asset valuations as a part of their ongoing SMSF compliance monitoring.
Why do assets need to be valued?
There are a number of important legal reasons why SMSF assets need to be regularly valued, including for:
- Preparing the fund’s financial accounts and financial 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 all of the fund’s 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.
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.
| 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 need to be determined based on objective data on
|
| 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 changed. This valuation could be done via an independent appraisal or by researching recent selling prices of similar properties to use as comparable, objective valuation data. |
Who can qualify as a valuer?
The valuation process undertaken generally governs the acceptability of an asset valuation from the ATO’s perspective, rather than who conducted the valuation. SMSF trustees can generally value fund assets themselves provided they use objective data as the basis for their valuations, except in the case of valuing collectable and personal use assets where the services of qualified independent valuer must be used.
Qualified independent valuers must have no relationship 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 valuation service providers for valuing any or all of their other SMSF assets. This option can be worthwhile for assets that represent a significant proportion of the fund’s total value, or whose accurate market value can be difficult to determine.
SMSF auditors can also request an independent valuation of SMSF assets as a part of their auditing process. SMSFs must currently be audited every year by an auditor approved by the Australian Securities and Investments Commission to ensure the compliance of their operations with super legislation.
The bottom line
Accurate asset valuation is integral to ensuring SMSF compliance with super legislation. SMSF assets must be valued at their current market value. SMSF trustees can take responsibility for valuing many types of assets if they wish, or they can use the services of independent professional valuers. Collectables and personal use SMSF assets must be valued by independent professional valuers. 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.
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