Mark Turner is recognised through the SMSF Association and recognised as a SMSF Specialist Auditor.
Since the 2012-13 income year, SMSFs have been required to use market value reporting for their financial accounts and statements. The current valuation guidelines apply as per normal for CGT Relief and valuations for the Transfer Balance Cap and Total Superannuation Balance. Here, SMSF Audit Group presents the SMSF Association Valuation Guidelines as per the SMSF Association PDF.
The SMSF Association Valuation Guidelines PDF can be downloaded here:
Generally, a valuation can be undertaken by anyone as long as it is based on objective and supportable data. You must be able to demonstrate that the valuation has been arrived at using a ‘fair and reasonable’ process.
Generally, a valuation is considered fair and reasonable where it meets all the following:
The ATO expects trustees to consider the value of the assets in their fund each year. This does not mean that an external valuation for all assets is needed each year. For example, assets such as real property may not need an annual valuation unless a significant event occurred that may change its value since it was last valued.
You should consider the use of a qualified independent valuer if either the:
The ATO will be looking closely at situations where it appears that circumstances have been engineered to achieve a particular total super balance, transfer balance or to gain access to CGT Relief
Use the closing price on each listed security’s approved stock exchange.
A recent valuation however would be prudent if you expect that the valuation is now materially inaccurate or an event occurred that may have affected the value 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.
When valuing unlisted securities and trusts, relevant factors and considerations may include:
• value of the assets in the entity – a potential method being the net asset value (NAV) reflected for market values of assets
• current valuation of large assets held in unlisted trusts and securities such as property can be attained to gain more objective and supportable data
• any valuation and distribution statements which supply objective information
• consideration paid on acquisition of the unlisted securities or units.
In a practical sense, where there have been recent purchases or sales in the unlisted security it may be possible to use the price of that transaction to derive the market value of the investment.
It is expected that you would be aware of the value of an asset at the time of acquisition, its potential for capital growth and its capacity to produce income. It is unlikely that an asset with no known value or potential for capital or income growth would be considered a prudent investment to support members’ retirement goals.
It is acknowledged that there may be instances where investments fail and there is neither a current value nor a ready market. This may mean the asset is held and recorded in the financial reports and statements at a nil or nominal amount.
In the SIS Act, “market value”, in relation to an asset, means the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:
‘Arm’s length’ refers to investments needing to be made and maintained on a commercial basis. A test would be whether a prudent person, acting with due regard to his or her own commercial interests, would have agreed to the terms.
‘Collectables and personal use’ assets can include an investment in artwork, jewellery, antiques, artefacts, coins, postage stamps, rare folios, memorabilia, wine or spirits, motor vehicles, recreational boats.
An ‘in-house asset’ of an SMSF, after 11 August 1999, is either a loan to, or an investment, in a related party of a fund, an investment in a related trust of a fund or an asset of a fund, other than business real property, that is subject to a lease between the trustees of an SMSF and a related part of the fund.
You can find a downloadable resource of the SMSF Association Valuation Guidelines here:
Read this guide in conjunction with:
Income tax: superannuation contributions – this ruling includes the Commissioner’s view on when a super provider acquires beneficial or legal ownership of an asset.