For Financial Statements prepared after the 2013 financial year, SMSF Trustees are required to report Fund assets at market values. This is a requirement under section R8.02B of the SIS Act. Previously it was optional to use either market or cost value.
How market value is calculated
Market value means the amount that a willing buyer of an asset could reasonably be expected to pay to acquire the asset from a willing seller. This also assumes an arm’s-length transaction, with proper marketing of the asset, and that the buyer and the seller acted knowledgeably, prudently, and without compulsion.
General valuation principles
With the support of Superannuation Warehouse and most other accountants, the ATO requires assets to be valued at market value.
Trustees must be able to demonstrate that valuations have been arrived at using a ‘fair and reasonable’ process. Generally, a valuation is considered fair and reasonable where it meets all of the following conditions:
- It takes into account all relevant factors and considerations likely to affect the value of the asset.
- It has been undertaken in good faith.
- It uses a rational and reasoned process.
- It is capable of explanation to a third party.
The ATO gives general guidelines on valuing assets in SMSFs. When an SMSF is in pension phase, these valuation guidelines are especially important and the ATO guidelines can be viewed here.
Asset types
While the valuation of listed assets such as shares is quite straightforward, valuing unlisted assets like property can be tricky. The new regulation means that SMSF Trustees now need to revalue unlisted assets.
The ATO has released its ‘Valuation guidelines for self-managed super funds’ to help trustees with the different types of assets valuation requirements.
Who can conduct the valuation
Valuations will be acceptable if it can be demonstrated that a fair and reasonable process has been used. For year-end reporting purposes, the ATO has stated that in most cases, the valuation can be undertaken by anyone as long as it is based on objective and supportable data.
However, the ATO has recommended a qualified independent valuer be used if an asset represents a significant portion of the funds value or the nature of the assets would mean that the valuation would be complex or difficult.
The ATO guidelines state that it would be acceptable for a real estate valuation to be undertaken by a property valuation service provider, including online services or a real estate agent.
Values for listed securities are easily obtainable from the security’s approved stock exchange using the closing price on 30 June each year.
For the ATO guideline regarding valuation requirements including pension assets, please see here.
Valuation Intervals
The value of assets should be given consideration annually, however this may not require a re-valuation each year. Assets such as cash and listed securities that are easily valued would be required to be valued at the end of every year.
To download a copy of our template for declaration of assets at year end, click here:
Helpful tips
The ATO suggests that their new valuation guidelines should be read in conjunction with the publication ‘Market valuation for tax purposes’ to ensure adherence to valuations for tax purposes.
The ATO issued a publication assisting in valuing Fund assets correctly when preparing the SMSF annual return. There is a requirement in obtaining an annual valuation of assets. The ATO further mentions there are approximately 16,500 Funds where the asset values remain unchanged for 3 years. The concern here is assets should be valued annually. See here for more information on the publication from the ATO.
Property Valuations Are Required Annually
When preparing for property valuations, you may consider Sovereign Valuations.
You can find out about Sovereign Valuations’ fee schedule below:
Alternatively, Superannuation Warehouse can assist with arranging the property valuation at a cost of $120 per property (Australian Properties only) more on our fee schedule here.
Year end Requirements
Trustees need to send Superannuation Warehouse the market value of assets when sending the year end documents for preparing the annual return.
Recent developments
As of the 1st of July 2012, the ATO have provided detailed guidance towards valuing property in R8.02B of the SIS act. This emphasizes Trustees responsibility when valuing property and passing the evidence on to auditors. This section also suggests that the ATO will be lenient when COVID-19 has impacted Trustees compliance to this responsibility. For more details, please see the ATOs page on R8.02B Property Valuations.
It is a requirement that assets held by an SMSF is displayed at market value at year end. This is especially important when an SMSF is in pension phase or start a pension. A higher Member balance that is a result of a higher valuation will lead to higher annual pension payments. The minimum pension payments that Trustees need to take from their SMSF, based on their age is explained on our pension page.
The requirement to have all assets valued at market value at year end includes an SMSF investment in Unlisted Unit Trusts. The most robust way of valuation might be to have a set of audited financial statements noting the underlying assets are displayed at market value. Alternatively potential valuation options are:
- Unit in an Unlisted Trust price based on recent sales of similar units
- An external valuation statement confirming that the value of the Units held by the SMSF is displayed at current market value
- Look through the Unit Trust ensuring the underlying assets are fairly valued
For more information and guidance on the ATO interpretation of the Unit Trust see the Unit Trust valuation.
There are three most common ways Trustees can value a property at market value are as follows:
- Comparing the value of the property with similar recent sales in the area
- Use a real estate agent to supply a valuation of the property held by the Fund
- Determine the market value based on the rental yield
