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Is your client's property valued correctly in their SMSF?

With property prices tipped to increase in the next 12 months, it’s a great time to see if your client has their property valued correctly in your SMSF.  Every year their super fund needs to prepare financial statements at market value, but does this mean they need to get their property valued every year?

What are the requirements?

SIS regulation 8.02B requires assets presented in the financial statements to be at their market value.  Failure to comply with SISR 8.02B results in a breach of the fund’s compliance for the year and may result in the Trustee being penalised.  But unless your client is selling their property its difficult to know what the market value is. The ATO has provided SMSF trustees with a valuation guide that if followed the ATO stated they will generally accept the valuation provided:

  • It does not conflict with the guide
  • There is no evidence that a different market value was used for the corresponding capital gains event
  • Its based on objective and supportable data.

There are several other reasons your client's SMSF assets need to be regularly valued:

  • Determining Total super balance of Fund members
  • Maximising Transition to retirement pensions
  • Where a SMSF has an in-house asset and to accurately measure that the 5% in-house asset ratio has not been exceeded
  • Ensuring related party acquisitions and transfers are on arm’s length basis
  • Ensuring the fund is receiving the appropriate rental income

The ATO’s guidance below includes the valuation requirements for several circumstances.

Based on the ATO valuation guidance real estate is required to be based on objective and supportable data.  This does not mean an independent valuation of property is required each year. However, care is required to ensure that there has not been any significant change in the market price of the asset since being acquired or revalued.

SMSF trustees wishing to complete their own valuations, must base the valuations on objective and supportable data. Aspects such as, the value of similar properties in the area, the amount that was paid for the property, whether the property has undergone improvements since it was last valued would be considered.  This can be complex and time-consuming, in most cases obtaining a valuation from a real-estate agent who has access to recent sales in the area is easier.

Our position is that SMSF trustees obtain an independent valuation or at least a kerb-side valuation every 3 years and for the 2 years in between the Trustee should base the property valuation on objective and supportable data and we request a minute signed by the Trustees confirming they are satisfied the current valuation is appropriate. 

If you have any questions around this, or would like to speak with an advisor, please contact the Partners Wealth Group Audit team today, and they will be more than happy to help you.