Do I Need to Value My SMSF Property Each Year?
Yes, you do need to value all assets of an SMSF every year and provide the auditor with appropriate evidence to justify the valuation.
Let’s have a look at why this is required and then what the trustee must do annually. The key reasons are that:
- The superannuation laws and regulations require the fund’s assets be valued at market value when preparing the fund’s financial statements and reports as at the 30th of June each year.
- A SMSF auditor must gather sufficient evidence to support the value of the fund’s assets as stated in the statement of financial position (balance sheet).
- The evidence must be based on objective and supportable data.
The ATO have provided guidelines as to what is acceptable as evidence to support a property valuation. The SMSF auditor must ensure they consider the ATO guidelines as well as their professional auditing standards.
What do I need to do Annually if my SMSF Owns Property?
If you have direct SMSF property investments, then you will need to ensure that you meet the valuation requirements.
Recently Purchased SMSF Property
If the property was purchased during the financial year and purchased from an individual or entity you do not own or have a connection with through a related party, the ATO will consider the purchase price as proof of the market value, as long as there have been no significant renovations made to the property or any major shifts in the overall market, such as a severe weather incident like a flood or earthquake, or an abrupt economic change since the date it was purchased.
Supporting evidence generally accepted evidence include the purchase agreement and a statement from the trustee verifying that there have been no significant changes since the initial purchase.
Was the new property (business property) purchased during the year from a member of the fund?
The ATO will generally require a formal valuation to support the market valuation among related parties due to the inherent conflicts of interest. The ATO places significantly greater importance on a formal valuation by an accredited valuer than on appraisals from real estate agents or other sources which can often be considered to be less reliable.
Real estate is a substantial investment and typically constitutes a major part of the fund’s assets. Transactions involving related parties undergo rigorous examination by the auditor, and a valuation that does not comply with ATO guidelines could severely impact the fund.
Obtaining a formal valuation can cost a grand or so depending on the complexity of the property. However, getting the valuation wrong and failing the ATO guidelines may end up costing the SMSF a lot more so it is never advisable to take a risk over such a small amount of money (in the scheme of a property investment).
Was the property purchased in a prior year?
For Residential Properties your SMSF Accountant can organise a valuation via the Class Super Software system which links into the RP Data/Core Logic system for automated valuations. This means there is no additional cost of valuation each year while the auditor has something independent to rely upon.
For Commercial properties or other unique property assets (farmland etc) then CoreLogic will be unable to provide an automated valuation which is where it gets a bit tricky as the auditor still expects the trustee to support with independent evidence what the market value of the asset is at the end of financial year.
Supportable evidence can include:
- a formal valuation from an independent valuer
- a real estate kerbside valuation – backed by comparable sales of similar properties which can be verified independently by the auditor
- a trustee valuation – backed by comparable sales of similar properties which can be verified or include other verifiable sources (per below)
- a rates notice can support other sources of evidence but is not sufficient evidence by itself
- net income yields in relation to commercial properties but only if the tenant is not a related party
As per the ATO website a market valuation report should include
At a minimum, valuation reports should contain the following:
- the purpose of the valuation
- the scope of the valuation
- details of the asset being valued
- the date it was conducted
- if it is a retrospective valuation assessment
- the date of inspection (if applicable)
- records to explain the basis of the market value
- the value