For accounts prepared for the 2012-13 financial year and later, SMSF Trustees are required to report Fund’s assets at market values. This is a requirement under section 35B of the SIS Act. Previously, it was optional to use either market or cost value.
What is Market Value?
Market value means the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller. This also assumes an arm’s-length transaction with proper marketing of the asset, and that the buyer and the seller acted knowledgeably, prudently without compulsion.
General Valuation Principles
Superannuation Warehouse and most other accountants have long considered it is the best practice to report assets at market values, and now it is the ATO’s requirement to do so.
Trustees must be able to demonstrate that valuations have been arrived at using a ‘fair and reasonable’ process. Generally, a valuation is considered fair and reasonable where it meets all of the following conditions:
- It takes into account all relevant factors and considerations likely to affect the value of the asset.
- It has been undertaken in good faith.
- It uses a rational and reasoned process.
- It is capable of explaining to a third party.
The ATO gives general guidelines on valuing assets in SMSFs. When an SMSF is in pension phase, these valuation guidelines are especially important and the ATO guidelines can be viewed here.
While the valuation of listed assets such as shares is quite straightforward, valuing unlisted assets like properties can be tricky. The new regulation means that SMSF Trustees now need to revalue unlisted assets.
The ATO has released its ‘Valuation guidelines for self-managed super funds’ to help Trustees with the valuation requirements. The ATO has stated that the valuation can be performed by anyone with objective and supportable data.
Who can Conduct the Valuation?
Valuations will be acceptable if it can demonstrate that a fair and reasonable process has been used. For year-end reporting purposes, the ATO has stated that in most cases, the valuation can be undertaken by anyone as long as it is based on objective and supportable data.
However, the ATO has recommended a qualified independent valuer to be used if an asset represents a significant portion of the Fund’s value or the nature of the assets would makes the valuation complex or difficult.
The ATO guidelines state that it would be acceptable for a real estate valuation to be undertaken by a property valuation service provider, including online services or a real estate agent.
Values for listed securities are easily obtainable from the security’s approved stock exchange using the closing price on 30 June each year.
The value of assets should be given consideration annually; however, this may not require a revaluation each year. Assets such as cash and listed securities that are easily valued would be required to be valued at the end of every year. Other assets such as real estates may not need to be revalued each year although a significant event occurring during the year may require a new valuation to be undertaken at year-end.
To download a copy of our template for declaration of assets at year end, click here.
The ATO has strongly suggested that their new valuation guidelines should be read in conjunction with their publication ‘Market valuation for tax purposes’ to ensure adherence to valuations required for tax purposes also. Further guidance on meeting annual asset revaluation standards to comply with Regulation 8.02B of the SIS Act can be found on the ATO website here.
Trustees need to send Superannuation Warehouse the market value of assets when sending the year-end documents for preparing the annual return.