The ATO has flagged some concerns for SMSF trustees about the casual approach some are taking to asset valuations.
More than 16,500 self-managed super funds have recorded the same asset values year after year for three years straight. Many of these are tied up in Australian residential or commercial properties, so it’s no surprise that they are attracting the attention of the ATO.
For trustees, if you’re repeatedly reporting the same figures, don’t be surprised if the ATO takes a closer look at your fund.
Remember, the values you report affect the balances of your members, which in turn impacts how much they can contribute and a range of other benefits like the ability to split assets for tax exemptions, the work test exemption, and catch-up concessional contributions. And let’s not forget, with the Division 296 $3m superannuation tax on the horizon, accurate valuations are more crucial than ever, especially if your balances are nearing or surpassing $3m.
If your asset falls under the ‘in-house’ category, like a related unit trust, accurate valuations must be kept within the 5% in-house asset rule. If you overshoot, you must sell off assets to get back in line.
Valuing at Market Value
Your SMSF needs to value its assets at ‘market value’ each year, and you’ll need to show your work to your auditor. Market value means what someone would reasonably pay for your asset in a fair deal. It’s all about what you could realistically get if you decided to sell.
If you’re holding onto collectibles or personal assets like art or jewelry, get a proper valuation from a qualified valuer at disposal time, though every three years is usually enough. If you don’t use an independent valuer, stay sharp and adjust your valuations based on the market vibe. For instance, if an artist’s work you own passes away, could that increase the value?
Typically, the ATO expects you to back your valuations with solid data and a clear reasoning for your figures.
Valuing Real Property
You don’t always need an independent valuer for your commercial or residential properties unless there’s been a significant change in the market or the property is unique. If you go down this path, ensure their report is thorough, covering how they valued the property and listing similar properties for comparison.
Are you doing it yourself? Document everything: when you valued the property, its features, and why those matter. Pull in data from a few reliable sources to support your assessment. And remember, generic online estimates aren’t usually enough.
For commercial properties, you’ll need to prove your rent levels are keeping up with the market, especially if your tenants are related parties.
Valuing Unlisted Companies and Trust Investments
Valuing these can be tricky. Financials alone won’t cut it. If you’ve invested in an unlisted entity, ensure your ongoing valuations reflect what you initially thought the asset was worth and its potential for growth and income.
Often, you’ll start with the entity’s assets’ value or what you paid for your shares or units. If the entity is large and established, usual buying and selling prices will guide you.
Navigating Market Absences
Occasionally, you might find yourself with an asset that’s unique or lacks a market. In such cases, you might rely on professional valuations or related market data until the asset’s real value is revealed upon sale.
Valuations Facing Division 296 Tax
With the Division 296 tax looming, getting your asset valuations spot on is critical, especially if your super balance is at or above $3m. Proper valuations ensure you don’t overpay on taxes and help prevent price distortions from skewing your tax liabilities. Accurate figures are your best defence against unnecessary tax bills.
If you’re a trustee of a self-managed super fund, it’s crucial to ensure that your fund’s asset valuations are accurate and up to date. Inaccurate valuations can lead to severe consequences, including penalties and tax liabilities. If you need help with superannuation advisory or have questions about SMSF asset valuations, our team of experts is here to assist you. Contact us today to schedule a consultation and ensure your SMSF is on the right track.