As a self-managed superfund trustee, you are required to adhere to the ATO’s asset valuation requirements. Different assets carry different valuation guidelines, and various events can trigger the need for a valuation. This article explains when you should carry out a valuation of SMSF property and assets, why your SMSF requires asset valuations, how you go about obtaining that valuation.
When should I obtain an SMSF asset valuation?
A whole range of events require you to obtain a valuation of the assets within your self-managed superfund. These include:
- When preparing the SMSF financial accounts and statements
- When executing the transfer and sale of collectibles and personal use assets
- When transferring assets between SMSFs and related and unrelated parties
- When a pension is commenced
- When establishing whether assets are eligible for CGT relief (16/17 FY)
- When establishing whether the SMSF’s in-house assets exceed the 5% rule
- When calculating members’ total super balances for financial reporting
- When a significant event may have affected the value of an asset (i.e. natural disaster, macro-economic events, changes to the asset)
In simple terms, assets within an SMSF must be valued regularly for the purposes of tracking performance, allowing for the commencement of a pension, calculating the in-house asset 5% test, and any other event for which a member’s total balance must be evidenced.
Why do my SMSF assets and properties need a valuation?
Managing SMSF assets and obtaining the valuation of SMSF property is important for the compliance of your fund, and for tracking the performance of your assets.
SMSF property and asset valuations may affect the total value of your fund, and therefore your eligibility to make concessional contributions and access available bring-forward facilities.
Similarly, the SMSF asset valuations can provide insights into the performance of your fund, helping to inform investment decisions and the date upon which SMSF members may choose to commence a pension.
In order to appropriately track the change in value of assets within an SMSF, an annual valuation is required at the end of each financial year. However, the ATO does not always require these valuations to be carried out by an independent qualified valuer.
How do I obtain a valuation of SMSF property and other assets?
Asset and property valuation requirements for SMSFs vary by asset class.
There are two instances in which the ATO stipulates that a qualified independent valuer must undertake the valuation:
- from 1 July 2011 for any collectables and personal use assets that were acquired on or after 1 July 2011 and disposed of to a related party
- from 1 July 2016 for any collectables or personal use assets that were acquired by the SMSF before 1 July 2011 and disposed of to a related party after 30 June 2016.
All other valuations may be carried out by a qualified or unqualified person providing that there is reasonable evidence to suggest their expertise in the valuation of the asset in question, and that the valuation is based on’ objective and supportable’ data.
It’s often recommended that properties within an SMSF are independently valued every three years, or after any significant event that may have positively or negatively impacted the asset’s value.
When an SMSF is acquiring assets from a related or unrelated party (in accordance with the ATO guidelines on permitted asset transfers), all transactions must be made on an arm’s length basis and at current market value. In these instances, the ATO recommends SMSF trustees consider a qualified independent valuation when the value of the asset in question represents a significant proportion of the fund’s value, or when circumstances suggest a complex transaction.
Aside from the few asset classes that specifically require qualified independent valuations, the ATO states that many SMSF assets can be valued using a ‘fair and reasonable’ process. When obtaining valuations for SMSF assets and property, ensure that all valuation calculations can be substantiated and reasonably explained to a third party.
For more information on SMSF property valuations or valuations of other assets within your SMSF, contact SMSF Valuation Reports.
Information in this article is general in nature and does not represent true SMSF financial advice.