SMSF property valuations are still an ATO focus – what do I need to provide to the administrator and auditor?

SMSF property valuations are still an ATO focus – what do I need to provide to the administrator and auditor?

SMSFs holding property have always been an ATO focus, but in light of record capital growth, especially during the past 12 months, this has brought it further into the spotlight.

Here is a brief summary of what you need to know and make available to your administrator and auditor to meet your fund’s compliance requirements.

ATO valuation guidelines

The ATO may review the fund’s property valuation as part of their compliance process and trustees may be asked to provide evidence of their documented valuation methodology. This includes ensuring the property is recorded at market value at year end and the valuation has been based on objective and supportable data in preparation for the annual financial statements, tax return and audit. 

Why does property need to be valued?

SMSFs are required to value all their assets as at 30 June each year at market value in order to determine the assets supporting members’ accumulation accounts and/or retirement phase accounts. The latter is important because the year end value of a pension account determines the basis in which the following year’s minimum and maximum pension payments are calculated. In addition, the fund’s market value assets at 30 June  establishes a member’s total superannuation balance in the SMSF, which impacts their contribution caps for the following financial year.

What is market value?

The ATO defines market value as “the amount a willing buyer of an asset could reasonably be expected to pay to acquire the asset from a willing seller if all the following assumptions were made – the:

  • Buyer and the seller dealt with each other at arm’s length in relation to the sale;
  • Sale occurred after proper marketing of the asset; and,
  • Buyer and the seller acted knowledgeably and prudentially in relation to the sale.

So how do I provide objective and supportable data?

The ATO has specifically stated that trustees are not required to obtain an external valuation by a qualified independent valuer of property for the fund’s assets for the purposes of preparing the fund’s accounts and statements.

However, they should consider using a qualified independent valuer if:

  • The value of a fund asset represents a significant proportion of the fund’s value; or,
  • The nature of the asset indicates that the valuation is likely to be complex or difficult.

Do I need to obtain a valuation every year?

If you choose to obtain an external valuation for the property, you do not need to have a valuation done each year. However, you must still consider whether the external valuation can be used to support your valuation of the asset each year. For example, if a significant event such as a global pandemic (like Covid-19) or a natural disaster has occurred, this may warrant the need for a new valuation even if the previous one was done within the past 12 months.

Alternatively, should you wish to adopt a trustee’s valuation on the property without an external valuation as the basis then supportable data should be provided to the administrator and auditor to show how this valuation was determined. This could include:

  • The value of similar properties and recent comparable sales results (eg. real estate agent sales appraisal and sales comparison report of properties in the area);
  • The amount paid for the property in an arm’s length market, if the purchase was recent and if any recent events have materially affected its value since the purchase;
  • Whether the property has undergone improvements since it was last valued; and,
  • For commercial properties, the ATO believe net income yields are not sufficient evidence on their own to determine market value.   

Please review the above guidance and contact your client manager if you have any queries.

Kreston Stanley Williamson

Author – Anna Wong  

*Correct as of 3 February 2022

*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.

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