How to comply with the SMSF Property Valuation Guidelines
One of the most common questions SMSF auditors are asked each year relate to the valuation requirements of SMSF property.
Let’s look at what the rules say and what you need to do to comply with the rules.
All SMSF investments must be valued at market value at 30 June each year, to comply with the superannuation law. This is a key requirement and incorrect valuations may result in:
Over or undervalued member balances
Failure to meet minimum pension draw downs and lost tax concessions
Incorrect assessment of a member’s ability to make contributions
Errors in the capital gain or capital loss figure on the disposal of assets
What does the ATO say?
The ATO website states the following:
“Each year trustees must provide objective and supportable evidence in accordance with the requirements under our SMSF valuation guidelines to their auditor”.
AND
“Real estate agent appraisals stating what the property is likely to sell for based on sales in the area, without listing details of those sales, would not on its own be sufficient and appropriate. The evidence should also support a market value for the property as close as possible to 30 June, especially where the market is potentially volatile”.
So what does this mean? It doesn’t mean a formal external valuation must be obtained every year. It does mean the auditor should be provided with evidence every year to support the value used in the financials.
An external valuation would be prudent if an event has occurred that has affected the value of the property, such as a renovation, extension or rezoning. The valuation can be undertaken by anyone provided it is based on objective and supportable data.
Property is an asset that is not always easy to value as there is no true market value until the property is actually sold. A simple way to look at it would be to think about what evidence you would provide a potential buyer to support the value of the property.
What does the SMSF auditor look at?
The role of the auditor is not to value assets, but to assess whether the market values recorded in the SMSF financials based on sufficient, appropriate and independent evidence.
They will consider the quantity, reliability, relevance and source of the evidence provided. They will also take into consideration the characteristics of the fund and the property and complete a risk assessment. As a result, they may not require the same level of evidence for the same types of investments.
For example, where a property has a significant value, the auditor may form the opinion that a basic appraisal letter by the real-estate agent responsible for leasing the property is not adequate and request a more detailed valuation report from an independent valuer.
A key thing to keep in mind is that the auditor is not able to use evidence in editable format such as an email forwarded by the trustees from a real estate agent confirming the market value of a property or information in word or excel format.
What evidence should be provided to support the market value?
A simple way to look at this is to consider the evidence you would provide a potential buyer to support the value if the investment. The following would generally be considered adequate audit evidence:
Formal valuation from a qualified and independent valuer.
Real estate agent valuation - with comparable sales listed in the valuation.
Online valuation – these will normally indicate whether the reliability is high, medium or low. The valuation needs to have a high reliability and include comparable sales.
Valuation from trustees - with evidence included such as recent comparable sales.
Some examples of valuation evidence that would generally be acceptable:
A valuation report from a professional valuer which includes a description of the property within 6 months of 30 June.
A trustee resolution assessing the market value based on a valuation report that is 2 years old combined with evidence of the percentage growth in the property market for the relevant suburb for the past 2 years or recent comparable sales. This information combined may be adequate to support the new value used.
A trustee resolution assessing the market value of a one-bedroom apartment with evidence included of recent sales in the same building for an identical apartment.
Online valuations for the relevant property as noted by websites such as domain.com.au and realestate.com.au provided the valuations have a high accuracy rating and list comparable sales.
Where can I get more information?
For more guidance issued by the ATO refer to QC 64053 which specifically covers property valuation requirements and examples:
ATO 2020, “Regulation 8.02B and evidence required to support real property valuations” (QC 64053),https://www.ato.gov.au/Super/Sup/Regulation-8-02B-and-evidence-required-to-support-real-property-valuations/
How can Red Willow Super help you?
We would love to help you, whether it is with completing SMSF audits, providing compliance support or delivering technical SMSF training.
Our team has extensive experience which means we can assist with a range of SMSF issues. We have assisted many accountants, advisors and trustees deal with compliance issues.
We provide cost effective audits and offer support to solve potential problems, let us be your competitive advantage.
Want to find out more? Check out our website, call us on 1300 920 2230 or email Support@RedWillowSuper.com.au
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