The requirements for SMSF property valuations can be confusing. This is partly because there are no hard and fast rules. The ATO has produced guidelines but these are open to some interpretation. Factors to consider include the domain expertise of the Trustee, and the expectations of the ATO and Fund Auditor.
Why Assets Need to be Valued
SMSF Financial Accounts are in some ways unique in that they require the market valuation of assets to be done each year. Reasons for this are so that the SMSF financial reports and member statements are more meaningful to members and allow for decisions to be made. It is also useful for a SMSF to be able to compare its investment returns against the wider superannuation investment sector.
Other Events Requiring Valuation
Certain events may require a valuation at the time of that specific event, for example:
• Business Real Property is acquired from, or disposed to a related party to ensure the transaction is at arm’s length.
• Determining the value of assets that fund a member’s pension.
When to Have an Independent Valuation for Real Property
An external valuation of real property is not required each year, but the decision as to whether to seek an independent valuation should be at least reviewed every year. The valuation approach will be examined by the fund auditor each year. A general rule of thumb is that it would appear reasonable to have an independent external valuation at least every 3 years. In determining whether an external valuation is required, more often the things to consider are:
• the value of the property in proportion of the fund’s overall value;
• significant changes in market conditions;
• any event that may have affected the value of the property such as a natural disaster.
Who can provide a valuation?
The valuation may be undertaken by anyone as long as it is based on objective and supportable data. When valuing real property, relevant factors and considerations may include:
• comparison to similar properties;
• sales history for the property;
• independent appraisals;
• value of any improvements; and
• net income yields.
An independent valuation can be provided through a number of methods. According to the ATO publication ‘Valuation guidelines for self-managed superannuation funds’, “A valuation undertaken by a property valuation service provider, including online services or real estate agent would be acceptable.”
A Trustee can provide a valuation if they can demonstrate that they have a sufficient level of knowledge and can support their valuation with factual data that can be reasonably interpreted by a 3rd party. For most Trustees this method may suffice for years when an independent valuation hasn’t been sought. For example, the Trustee may be able to find statistical evidence that market conditions have not changed significantly as support for their decision to maintain a prior year external independent valuation. If a Trustee arranges an external independent valuation every 3 years, supplemented by an annual internal valuation with objective supporting data, then in general, the requirements will be met to the satisfaction of the Auditor and the ATO.
As a member of the National Tax and Accountants’ Association, we have access to independent online property valuations for residential properties that meet the ATO valuation guidelines. The online service produces a report that lists the property sales history and provides a valuation amount/range, rent estimate and yield estimate based on key market data and comparable properties. The property valuation can be requested in conjunction with fund audits or as an independent service.
Please contact us for details if as a Trustee, this is a service you are interested in