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If you have an SMSF, no doubt you are aware that you need to have your fund’s assets valued regularly to remain compliant with Australia’s superannuation legislation.
While the Australian Taxation Office (ATO) generally accepts SMSF asset valuations that follow the guidelines, it may review valuations as part of its ongoing compliance monitoring. The overarching principle is that assets are reported at market value. So be sure you have evidence to support your valuations as well as documentation of the methods used.
Why do assets need to be valued?
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:
- 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.
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.
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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).
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.
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