SMSF Valuation Guidelines | under the Super Reforms |July 2017

It was a mad rush to see clients to 30 June 2017 under the incoming super reforms, and we have now moved into phase two with many decisions required to be made when the 2017 accounts are prepared. Of particular importance, whether or not to take up CGT relief on assets for those clients who are eligible.

 

This will not be a blanket solution for the clients who are affected and careful consideration and advice will be required in many cases.

On the back of the CGT relief options, we have also received many enquiries about the valuation of assets. Please note, the ATOs valuation guidelines have not changed, nor will they change for the purpose of CGT relief.

It is up to the SMSF trustees to value all assets at market value at 30 June every year. Property doesn’t require a sworn valuation or even a curb side valuation each year (industry standard to obtain at least curb side every 2 to 3 years), but the trustees must take into account relevant factors each year, as noted in the below valuation guidelines.

General valuation principles

Generally, a valuation can be undertaken by anyone as long as it is based on objective and supportable data. You must be able to demonstrate that the valuation has been arrived at using a ‘fair and reasonable’ process.

Generally, a valuation is considered fair and reasonable where it meets all the following criteria:

  • 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 explanation to a third party.

Specific requirements for asset classes

Listed securities

Use the closing price on each listed security’s approved stock exchange.

Real property

A recent valuation, however, would be prudent if you expect the valuation is now materially inaccurate or an event occurred that may have affected the value of the property since it was last valued. This may be due to a change in market conditions or a natural disaster. When valuing real property, relevant factors and considerations may include:

  • the value of similar properties
  • the amount that was paid for the property in an arm’s length market
  • independent appraisals
  • whether the property has undergone improvements since it was last valued
  • for commercial properties, net income yields.

Unlisted securities and unit trusts

When valuing unlisted securities and trusts, relevant factors and considerations may include:

  • value of the assets in the entity – a potential method being the net asset value (NAV) reflected for market values of assets
  • current valuation of large assets held in unlisted trusts and securities such as property can be attained to gain more objective and supportable data
  • any valuation and distribution statements which supply objective information
  • consideration paid on acquisition of the unlisted securities or units. In a practical sense, where there have been recent purchases or sales in the unlisted security it may be possible to use the price of that transaction to derive the market value of the investment.

Investments without a ready market

It is expected that at the time of acquisition you are aware of the value of an asset, its potential for capital growth and its capacity to produce income.

It is unlikely that an asset with no known value or potential for capital or income growth would be considered a prudent investment to support members’ retirement goals.

It is acknowledged that there may be instances where investments fail and there is neither a current value nor a ready market. This may mean the asset is held and recorded in the financial reports and statements at a nil or nominal amount.

For more details please refer to the ATO’s Valuation guidelines for self-managed superannuation funds

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.