Each year, trustees of self-managed super funds (SMSFs) must value the fund’s assets at their ‘market value.’ Before you submit your SMSF annual return (SAR), your fund’s SMSF auditor must verify that the assets are valued correctly. They will also assess and document whether the valuation basis is appropriate.
As an SMSF trustee, you have a legal obligation to value and report each asset’s market value every single year. The ATO is checking data to identify SMSFs reporting the same value for assets year after year — this is a breach of market valuation rules and can land the trustees and the auditors in hot water, so it’s important to ensure you are correctly valuing assets in your next annual return. If asset valuations do not meet the required standards, the fund and its members could face additional taxes and administrative penalties.
During the annual audit process, you must provide objective and supportable evidence to your SMSF auditor to back up the valuation of your fund’s assets. This includes providing all the relevant documents requested by your auditor.
It is crucial for trustees to ensure their SMSF’s assets are reported at market value when preparing financial statements and annual returns.
Valuing Real Property in an SMSF
When valuing real property within an SMSF, it’s a good idea to use a qualified independent valuer. This ensures the valuation is accurate and reliable.
Several factors should be considered when determining the value of property in an SMSF:
- – Comparable properties and sales: Look at the value of similar properties and recent sales in the area to get a sense of the market. If the property was bought recently and no significant events have impacted its value, the price paid in an arm’s length transaction can be a good indicator.
- – Independent appraisals: A curbside appraisal from a real estate agent can provide an estimate of value.
- – Property improvements: If the property has been improved since the last valuation, this should be factored into the current value.
- – Rates notice: A rates notice can be considered, but only if it aligns with other valuation evidence.
It’s important to use multiple sources to confirm a property’s market value. Relying on just one piece of evidence is generally insufficient for an accurate valuation.
Anyone can carry out the valuation of real property for SMSF financial accounts and statements, provided it is based on objective and supportable data. A valuation from a property valuation service, including online services or a real estate agent, is acceptable. However, if this is the only source of evidence, the valuation should clearly list the data it relies on. For example, a real estate agent’s appraisal or an online report should specify the comparable sales used to determine the value.
Issues to watch out for when valuing your SMSF property
Although most SMSF trustees strive to comply with regulations, the ATO often comes across common issues when auditing funds that hold property. One frequent problem is the failure to obtain updated formal valuations regularly, which can lead to outdated reports that trigger ATO compliance reviews. Another issue is the use of inadequate valuation methods, such as relying solely on free online estimators or a simple letter from a real estate agent. These approaches do not meet ATO standards, as proper documentation must include thorough market research and calculations to substantiate the property’s value. Poor documentation, where an estimate is provided without detailing the objective methodology behind it, can leave an SMSF vulnerable to ATO scrutiny. Funds may also face challenges if property valuations are significantly higher or lower than what seems reasonable, making it crucial to justify how the valuation was determined.
If you are considering purchasing property inside your super, don’t hesitate to reach out to SMSF Loan Experts. Our team is here to support you through the financing process that comes with buying property inside super. Contact us today to get the support you need.
