SMSF asset valuations: Why the ATO is taking greater interest

Note: An external independent valuation (for certain assets) is not required every year, but if an SMSF trustee is relying on an independent valuation undertaken in a prior year, the SMSF trustee must be satisfied that the valuation still reflects the market value of the asset.

Important: The ATO has warned that SMSF trustees must apply SMSF asset valuations consistently for all fund purposes. For example, SMSF trustees cannot apply different valuation to the fund assets for transitional CGT relief, compared with the valuation used when valuing assets for transfer balance cap and total superannuation balance purposes. For more information on these three concepts, see the following SuperGuide articles:

• CGT relief and the $1.6 million transfer balance cap, and TRIPs
• Retirement phase: A super guide to the $1.6 million transfer balance cap
• Total Superannuation Balance: 7 reasons why your TSB matters

When are SMSF asset valuations required?

Before July 2017, SMSFs were (and continue to be since July 2017) required to determine the market value of fund assets for several purposes, including the following:

• preparation of fund financial accounts and statements
• acquisition of assets between SMSF and related party
• disposal of certain collectibles and personal use assets to a related party
• compliance issues surrounding in-house assets to a related party
• compliance issues surrounding assets that support a fund member’s super pension and to comply with minimum pension payment rules

Since July 2017, SMSF asset valuations are now relevant for the following additional purposes:

• determining the value of existing super pensions in retirement phase as at 1 July 2017, for transfer balance cap purposes
• determining the value of new super pensions on or after 1 July 2017, for transfer balance cap purposes
• determining the market value of assets that are eligible for the transitional capital gains tax relief during the 2016/2017 year
• determining the market value of assets supporting a fund member’s retirement phase and accumulation phase accounts, for the purpose of calculating the fund member’s total superannuation balance.

Note: The ATO does not require more frequent SMSF asset valuations since the July 2017 changes were introduced. SMSFs must value fund assets annually, and at other times when certain events take place, for example, when a fund member starts a super pension, or when a fund asset is sold to a related party. What has changed since July 2017 is the importance of WHEN the asset valuation takes place. In some instances, more timely asset valuations will be required to ensure a fund member does not accidentally exceed his or her transfer balance cap.

ATO guidance on valuing property, unlisted assets and collectibles

The ATO acknowledges that SMSF asset valuations are straightforward when it relates to listed shares and other listed securities, and also cash-based investments. Valuation of real property, unlisted assets and collectibles can be more problematic when the ATO is considering what is an appropriate and acceptable valuation. Set out below is ATO guidance on the valuation of these 3 types of assets.

Real property: According to the ATO, an independent professional valuation is often the best source of evidence to support the value of an SMSF property investment. The ATO will also accept an evaluation by a real estate agent, comparable sales data, property valuation website data or rates notices. A common question for real property valuations is where the valuation is within a range. According to the ATO, a price range can be acceptable if based upon objective and supportable data, but it is not acceptable to use the lower end of the range for one purpose (such as, for transfer balance cap purposes), and the higher end of the range for another purpose (such as transitional CGT relief purposes).

Investments in unlisted entities: According to the ATO, valuing these types of assets is more complex, but they must have a value. The starting point is to check out the relevant entity’s financial statements. If the underlying assets held by the entity are not recorded at market value in the financial statements, then the SMSF trustee must source objective data and evidence to identify the value of the unlisted investment.

Art, collectibles and personal use assets: The super rules now require all SMSF investments in art, collectibles and personal use assets to be ensured, so the ATO suggests the insured value is a good starting point when ascertaining value. The ATO also suggests that an independent appraisal can be obtained for artwork and other collectibles, or if the item was purchased recently (past few months), then the purchase price would be acceptable.

For more information…

For more information about SMSF-specific compliance issues as a result of the July 2017 changes, see SuperGuide article Latest super changes: 25-point SMSF guide to ATO’s hot issues.

For more information about the July 2017 super changes and other related super changes, see SuperGuide article Latest superannuation rules: 2018/2019 guide.

For more information about the $1.6 million transfer balance cap, see the following SuperGuide articles:

• Retirement phase: A super guide to the $1.6 million transfer balance cap
• CGT relief and the $1.6 million transfer balance cap, and TRIPs
• Superannuation death benefits and the $1.6 million transfer balance cap
• Defined benefit pensions and the $1.6 million transfer balance cap
• Latest super changes: ATO Guidance Notes and Law Companion Rulings
• Compliance alert! 85% of SMSFs exempt from quarterly event-based reporting

For more information about the rules applicable to a person’s Total Superannuation Balance, see the following SuperGuide articles:

• Total Superannuation Balance: 7 reasons why your TSB matters
• Non-concessional contributions: 10 facts about the $100,000 cap
• New normal: $100,000 non-concessional contributions cap
• Carry-forward contributions: How your unused contribution limits can help you catch up
• Retirement phase: A super guide to the $1.6 million transfer balance cap