One of the many responsibilities SMSF trustees have each income year is to value their fund’s assets at market value.
The market value is calculated on 30 June and is the amount someone could be reasonably expected to pay if the asset was for sale. These valuations will be used when preparing the annual financial statements and SMSF annual return for your SMSF.
The asset valuations will be reviewed by your approved SMSF auditor as part of the annual audit prior to lodgment of your SMSF annual return. Your auditor will check that assets have been valued correctly, assess and document whether the basis for the valuation is appropriate given the nature of the asset. They are not responsible for valuing fund assets and if you are unable to provide your auditor with appropriate evidence of market value of fund assets this could result in a contravention being reported to the Australian Taxation Office (ATO).
Therefore, SMSF trustees need to provide objective and supportable evidence for the valuation of the fund’s assets, including all relevant documents requested to prevent delays in auditing your fund. Failure to do so could result in a potential late lodgement of your annual return or a contravention if mistakes have been made.
Blaze Acumen will need to have up to date valuations from trustees completed before we submit your files to your auditor on your behalf.
Start researching now to:
- Find who can value your assets; and
- What type of evidence you need to support the valuation of your fund’s assets
We have previously written about the importance of obtaining sufficient evidence to support market values for properties and unlisted investments. See Client Alert No.89: Valuation of property and unlisted investments, we revisit the key themes below:
Unlisted Investments
The requirement to value fund assets at market value can present problems when a fund invests in unlisted assets, the most common of these being unit trusts and companies, some of which are closely held.
The Australian Taxation Office (ATO) has issued guidelines to assist trustees and auditors when making these assessments. This guidance advises appropriate audit evidence could include one or more of the following:
- An independent expert valuation of assets held in the company or unit trust. If this cannot be provided, then the auditor may accept a director or trustee valuation but will want to see objective and verifiable data to support their valuation. The auditor will also want to understand the valuation method used and any assumptions that have been relied upon.
- A property valuation where property is a material asset of the company or trust;
- Bank statements or confirmations to support material cash balances; or
- The date and price of recent sales of the shares or units between unrelated parties.
The ATO makes it clear that signed audited financial statements of the company or trust are unlikely to be sufficient on their own if assets have been valued at cost. Unaudited financial statements are also unlikely to meet auditor requirements and they may seek additional information to verify the balances shown in these statements.
Auditors will also request documentation to support existence and ownership including:
- Share certificates; and
- Unit certificates
In some instances, the auditor may seek written confirmation of a share or unit holding directly from the entity.
Property
With specific reference to property, forms of acceptable evidence sufficient for substantiating the market value of real property other than an external valuation include:
- Independent appraisals from a real estate agent;
- A contract of sale if the purchase is recent and no events have occurred to the property that could materially impact its value since the purchase; and
- recent comparable sales results.
Where a commercial property is leased to a related party, a rental appraisal is also required.
We note that our software allows for some valuations to be obtained for residential properties free of charge. Where this is possible, we will use these valuations if you choose to adopt this value.
Where the above is not available, for the 2023 financial year, Trustees will need to provide up to date valuations for properties held within their SMSFs, either directly or indirectly via intermediaries i.e within a Unit Trust.
If you require help obtaining a valuation, Blaze Acumen can suggest professional valuers who can assist.
Questions?
If you have any questions about your SMSF compliance or need clarity around valuations, please contact your regular Blaze Acumen advisor or any of the following:
Michelle McKenzie
Partner 03 9694 3040 mmckenzie@blazeacumen.com.au
Erica Harper
Partner 03 9694 3045 eharper@blazeacumen.com.au
Adam Konsak
Director 03 9694 3085 akonsak@blazeacumen.com.au