Are you aware that all assets held within Self Managed Superannuation Funds (SMSFs) need to be included in the SMSF financial accounts and statements at their market value? Therefore, if you hold property assets within your SMSF, you will need to have the property revalued periodically.
The ATO has set Valuation Guidelines for Self Managed Superannuation Funds and we have set out below further information to assist you in obtaining acceptable valuations.
As part of the ATO compliance process, you may be asked for evidence of the valuation method that has been used in preparing a valuation. A critical element in determining whether the ATO will accept the valuation is that it was based on objective and supportable data.
Objective and Supportable Data
As Trustee of a SMSF, you must be able to demonstrate that the valuation has been arrived at using a "fair and reasonable” process. The ATO would consider a valuation as fair and reasonable where it meets the following it:
- takes into account all relevant factors and considerations likely to affect the value of the asset
- has been undertaken in good faith
- uses a rational and reasoned process
- is capable of explanation to a third party.
When preparing SMSF financial reports, an external valuation of real property is not required each year. However, a recent valuation would be prudent if you expect the valuation is materially inaccurate or an event or occurred may have affected the worth of the property since it was last valued. This may be due to a change in market conditions or a natural disaster.
When valuing real property, relevant factors and considerations may include:
- the value of similar properties
- the amount that was paid for the property in an arm's length market
- independent appraisals
- whether the property has undergone improvements since it was last valued
- for commercial properties, net income yields.
Business real property acquired from a related party of the SMSF must be made at market value. Disposals of real property to a related party of the SMSF must be conducted at arm's length. When valuing real property assets for SMSF financial reports, the valuation may be undertaken by anyone as long as it is based on objective and supportable data. A valuation undertaken by a property valuation service provider, including online services or real estate agent would be acceptable.
The main factor in the new guidelines is that you need to be able to demonstrate how the valuation was arrived at. To assist you in obtaining an acceptable valuation on your SMSF properties, some examples are set out below (based on the ATO guidelines):
| Example of Valuation |
Commentary |
|
We have determined the value of the property to be $300,000. In determining this valuation, we considered the following recent property sales (of similar properties in the same region):
Lot 5 - $290,000
Lot 10 - $320,000
|
We would consider this acceptable as the valuation is based on objective and supportable data. |
| We have determined that the value of the property is $300,000. |
We would not consider this valuation as being acceptable, as there is not sufficient rationale as to how the valuation was arrived at. |
| We have determined a fair value of the property to be in the range of $500,000 - $600,000. In determining this property valuation, we considered the current rental yield on the property and that the region currently supports yields of around 8% per annum (evidence supplied). |
We would consider this acceptable as the valuation is based on objective and supportable data. |
The Table below provides a summary of the valuation requirements (Source: ATO)
| Event |
Requirement |
| Preparing the SMSF Financial accounts and statements |
An asset must be valued at its market value. The valuation should be based on objective and supportable data. |
| Transfers between SMSFs and related parties |
Acquisitions of permitted assets must be made at market value. A valuation is not required when an asset is disposed of to a related party however it must occur on an arm's length basis. |
| Transfers between SMSFs and unrelated parties |
A valuation is not required however the transfer must occur on an arm's length basis. |
| Determining the value of assets that support a super pension. This includes for calculating amounts that count towards the transfer balance cap. |
The market value of the account balance needs to be determined on the commencement day of the pension or, for ongoing pensions, on 1 July of the financial year in which the pension is paid. The valuation should be based on objective and supportable data. |
| Testing whether the market value of the SMSF's in-house assets exceeds 5% of the value of total assets held by the fund. |
The value of a fund's total assets needs to be determined on 30 June of the financial year that the in-house assets are held.
The valuation should be based on objective and supportable data. |
| Determining the market value of assets that are eligible for transitional CGT relief in the 2016–17 income year. |
The assets' market values need to be determined on the date that their cost bases are reset. The valuation should be based on objective and supportable data. |
| Determining the market value of assets supporting members' retirement phase and accumulation accounts for the purposes of calculating the members' total superannuation balances |
The value of these accounts needs to be determined on 30 June each financial year, as the total superannuation balance is calculated at this time for a number of purposes. The valuation should be based on objective and supportable data. |
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