Asset valuation guidelines for SMSFs

If you have a self-managed super fund (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.

What is market value?

The Australian Taxation Office (ATO) defines market value as the following:

Market value is the estimated monetary worth of an asset on the open market at a particular time. It is based on:

• The most valuable use of the asset (which may be different to how it is currently used)
• The amount that a willing buyer and seller would agree to in an arm’s length transaction.

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 (that is, the balance of their accumulation and retirement accounts). Currently, if any super fund member’s balance exceeds $1.9 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 $1.9 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 (your total super balance must be less than $500,000 at 30 June of the previous financial year.
• Ensuring any assets are acquired or transferred on an arm’s-length basis (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 on 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. The ATO recommends using a qualified valuer for assets that represent a significant proportion of the fund’s total value, or where the nature of the asset means valuation is likely to be complex..

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).

Step-by-step guide to valuing your fund’s assets