SMSF Market Valuation Requirements Explained

Obtaining the market valuation of assets held by an SMSF is not an issue where a public market exists, such as a stock exchange, managed funds, the bond market, or exchange-traded funds (ETFs). However, when a fund holds real estate, a private unit trust, or a private company, the supportable evidence can be much harder to obtain.

An SMSF can no longer rely on a trustee statement as evidence of market value. The valuation must be more than a mere statement and must be verifiable by an independent third party. R8.02B of the SIS Regulations requires an SMSF to prepare the fund’s accounts and statements at market value. The ATO have provided guidance on valuing SMSF assets.

Market value is defined under the SIS Act as:

“market value
in relation to an asset, means the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:

(a) that the buyer and the seller dealt with each other at arm’s length in relation to the sale;

(b) that the sale occurred after proper marketing of the asset;

(c) that the buyer and the seller acted knowledgeably and prudentially in relation to the sale.”

Why is valuing the fund’s assets at 30 June important?

There are a number of tax concessions that a member can access, subject to their total superannuation balance (TSB) at the previous 30 June, which is affected by the value of a fund’s underlying assets, including eligibility for:

• utilise the bring forward rule for non-concessional (after tax) contributions
• utilise the carry forward unused concessional contributions rule (before tax)
• make non-concessional contributions
• receive government co-contributions

The market value of a fund’s assets at 30 June can also affect:

• the value of in-house assets a fund can hold at 30 June, which cannot exceed the 5% threshold, based on the total value of the fund’s assets held at 30 June
• the required minimum pension withdrawal, which is based on a percentage of a member’s pension balance at the previous 30 June
• a member’s eligibility to Division 296 tax

Hint – Total superannuation balance (TSB) is the total amount an individual has in super across all superannuation funds.

When else should my SMSF value its assets at market value?

At the end of each financial year, it is well known that an SMSF trustee must value its assets at market value, but there are other times when this is also important, including:

• starting a new pension – an SMSF must report the amount used to establish a pension, as there is a cap on the amount an individual can have in super used to provide a retirement-phase pension, the transfer balance cap (TBC)
• commuting a pension which affects a member’s TBC
• death of a member to determine the amount required to be paid out as a death benefit
• payment of a member benefit
• acquiring an eligible asset, such as commercial property, from a member or related party of the fund
• selling a fund asset to a member or related party of the fund

A general guideline for acceptable valuation evidence

Asset type	Acceptable audit evidence
Real property	Real estate agent kerbside valuation with at least three comparable sales of similar properties in the same area.
	Desktop valuation providers are usually only acceptable for residential property when the deviation / variation % is not too high.
	Recent purchase price when acquired from a third party, with no significant changes such as renovations or natural disasters.
	Commercial property – Net income yields can support the value where the property was acquired from a third party and is leased to an independent third party. This cannot be the sole evidence source.
	A formal valuation from a qualified independent valuer – this is preferred when dealing with acquisitions to or from a related party.
	Council Rates and Land Tax notices are generally insufficient audit evidence for property valuations although they can be used to support other methods and for vacant land.
Loans to related (cannot be a member or relative) or unrelated parties	Details of security (if applicable) in relation to the loan, copy of the signed loan agreement with commercial terms and conditions, evidence of loan repayments and loan balance. Ensure the reported loan value is recoverable. Auditors generally require signed company financial statements and declarations from the borrower around recoverability.
Unlisted private unit trust – unrelated	The last trade price within 6 months ether way of 30 June or a director’s valuation (with supportable evidence). If a property is the main asset, then a valuation of that property would be expected. Cost may be appropriate in the first year of trading. A copy of the signed financials. Evidence of any significant loans, assets and bank statements.
Unlisted private unit trust – related	A copy of the signed financial statements. A copy of the bank statement and valuation of the assets– if property, then a market valuation as per real property above is required.
Listed securities	Closing price as per the appropriate stock exchange
Managed funds	The ex-distribution price provided by the responsible entity.

What happens if my SMSF gets it wrong?

An SMSF auditor who is not satisfied with the evidence supporting the market valuation of a fund’s assets must report this to the ATO in an Auditor Contravention Report (ACR). The ATO will then decide whether to investigate the matter further. Penalties depend on the significance of the breach, whether the fund has a history of non-compliance, and the trustee’s willingness to rectify it.