Finding the Market Value of SMSF Assets
Market value is an important concept for you to understand as trustee because it is a key requirement of many superannuation laws.
The ATO has also published a comprehensive guide outlining its views on obtaining a market value of assets. These views are have been summarised as follows.
Preparation of your SMSF financial statements
Your SMSF assets must be valued at market value every year for the purposes of preparing the annual financial statements and accounts for your SMSF. The ATO provides the following guidelines for valuing your SMSF assets:
- Cash, widely held managed funds and listed securities– use the closing price from the approved stock exchange or licensed market at the relevant time (e.g., at 30 June).
- Managed fund investments– use the published exit price from the fund manager.
- Real property– the valuation can be undertaken by anyone, provided it is based on independent data that is supported by evidence. Valuations by online property valuation services or a real estate are acceptable to the ATO.
Considerations when valuing real property include: the value of similar properties; net income yields (commercial property); whether improvements have been made to the property and any appraisals your SMSF may have.
You do not need a property valuation each year. A recent valuation should be considered if a previous valuation is no longer current, or an event (e.g., a natural disaster) affected the property’s value.
- Shares and units that are not listed on a stock exchange– take into account the value of the assets in the company or trust, or the price your SMSF paid for the shares or units. Consider speaking to an external valuer if the valuation is complex.
- Failed investments– if no current value is available for a failed investment, and the asset cannot easily be sold, value the asset at a nil or nominal amount.
Value Pension Assets
Your SMSF asset values must be accurate to ensure that your minimum pension payments (and 10% maximum for a transition to retirement income stream) are correct. You are likely to miscalculate the minimum and maximum pension payments if the SMSF’s assets are valued improperly.
The implications of this are as follows:
- Commencement year– if you commence a pension on 1 July, the value of your pension can be obtained from the financial statements. If you start a pension on any other day, you need to value your SMSF assets at that time to ensure you calculate the minimum pension payment correctly.
The ATO accepts that you can make a reasonable estimate of the account balance if you start the pension part-way during the year. However, we recommend that you determine the values accurately due to the penalties that apply if you get it wrong. - Subsequent years– the minimum pension payment is calculated as at 1 July. You can use your SMSF’s financial statements for that year to calculate the minimum pension payment.
Other instances of market valuation requirements
- Business property– your SMSF is permitted to acquire business real property (e.g., a factory) from a person or structure within the family group, but only at market value.
- SMSF investments– more generally, all SMSF investments and associated transactions must be made on commercial terms. This means that any dealings or transactions occurring after the initial investment (e.g., a lease of real property) must also occur at market value.
- In-house assets– certain transactions involving your SMSF and family group are limited to 5% of SMSF’s assets (calculated on a market value basis). Incorrect asset values can result in you miscalculating the level of your SMSF’s in-house assets and breaching the law.
- Collectables and personal use assets– any disposals of these assets by your SMSF to your family group (e.g., a member) must be at a price determined by an independent valuer. Collectables and personal use assets acquired before 1 July 2011 will only need a formal valuation if they are sold to a related party after 30 June 2016. Note, your SMSF is permitted to dispose of other assets to members and other family members, but the disposal must take place at market value, and comply with the superannuation rules.