Understanding the complexities of SMSF asset valuations, especially in the context of property assets, can be challenging. This explanatory guide focuses on the fundamental aspects of SMSF property valuation, and explains the Australian Tax Office's (ATO's) perspective.
Self-managed super fund (SMSF) trustees must ensure that their fund's assets are valued at market value each financial year. This annual valuation forms a crucial component of preparing the SMSF's financial accounts and statements.
A critical mandate is that trustees ensure all assets are valued at market value EACH year. This requirement enforces an accurate reflection of the SMSF's financial position, impacting the members' entitlements and ensuring compliance with regulatory standards.
The valuation process is to be based on objective and supportable data available each year. Irrespective of the individual performing the valuation, objective data forms the foundation of a robust valuation methodology. For more information on the ATO's specific requirements for objective and supportable data, click here.
The ATO places more emphasis on the valuation process than who conducted the valuation. A professional, paid valuation from a qualified independent valuer is not necessary annually, unless the circumstances demand it. Circumstances that may necessitate a paid valuation include when the property represents a significant proportion of the fund's value or if deriving a valuation is difficult due to insufficient objective and supportable evidence.
Given that real property valuations change annually, prior independent qualified valuations are no longer valid in the following year. The ATO mandates that trustees obtain a fresh valuation each year based on the criteria above.
Trustees should consider a variety of sources to substantiate the market value of real property. A single item of evidence is generally insufficient. Possible evidence could include comparable property sales, recent property purchase price (under specific conditions), independent appraisal from a real estate agent, improvements to the property, rates notice, and net income yields for commercial properties.
Trustees investing in Commercial properties can use net income yields to help determine a value, provided their tenant is unrelated. If the tenant is related, this approach is not valid for determining a valuation.
Valuations undertaken by property valuation service providers, including online services or real estate agents, are acceptable, provided they offer supportable data if it's the sole source of evidence relied upon to substantiate the valuation.
Looking to delve deeper? We invite you to explore our subsequent guide titled 'SMSF Asset Valuations: Addressing Specific Cases'. This detailed guide covers various instances you might encounter during a property valuation in an SMSF context. Expand your knowledge and equip yourself for potential challenges by heading over to the Specific Cases Guide.
Ensuring your SMSF meets all ATO regulations can be a complex process, especially when it comes to property valuations. With the essential information provided in this article, you're already one step closer to understanding these intricacies. If you feel that you need an expert to review your SMSF for compliance, don't hesitate. Start your SMSF audit process today by visiting our New Client Registration page. Understanding and ensuring your compliance has never been this straightforward.Talk to an expert Now. Call 0478 056 180