Q: I have been advised that since the introduction of the $1.6 million transfer balance cap, the Australian Taxation Office is cracking down on SMSF valuations, looking for more timely valuation updates from more reliable sources. What is the ATO looking for?
A: ATO deputy commissioner, superannuation, James O’Halloran spoke on this subject at the CPA National Congress last week. Here is a paraphrased extract from his speech:
Asset valuations are always important. They must be based on objective and supportable data and cannot be underestimated. There are three key points to make about SMSF asset valuations in the post-super reform environment.
Firstly, the principles set out in the ATO’s valuation guidelines for SMSFs still apply and in accordance with those guidelines an external independent valuation is not required every year.
Secondly, trustees must satisfy themselves that the values attributed to assets in their fund can be supported by objective data and evidence every year. If they are relying on an independent valuation undertaken in a prior year they must be satisfied that the valuation still reflects the market value of the asset in question.
Finally, trustees must apply relevant SMSF asset valuations consistently for all purposes. For example, different valuations can’t be adopted in relation to the same asset for the transfer balance cap and total superannuation balance purposes, compared with transitional CGT relief purposes.
The ATO’s view is that SMSFs have always been required to value their assets at least annually and at other times when certain events occur. For example, when an SMSF member starts a pension or when a fund asset is disposed of to a related party.
While the frequency with which SMSF valuations are required to be undertaken hasn’t changed, the timing of when valuations are undertaken is considerably more important in the post-super reform environment. In many cases more timely SMSF asset valuations will be required to ensure that members don’t inadvertently exceed the transfer balance cap, for example when starting a new pension.
All SMSF investments in art, collectables and personal use assets must be insured in the name of the fund. Therefore, a clear starting point for valuing these items is the insured value as stated in the SMSF’s contract of insurance for the item.
Alternatively, in the case of artwork and collectables an independent appraisal could be obtained from a gallery or antique dealer.
When it comes to real property, an independent professional valuation will be the best evidence to support the value attributed to an SMSF’s investment. However, trustees can also rely on data such as a valuation by a real estate agent, comparable sales data, property valuation website data or rates notices as objective evidence to support valuations.
If relying on evidence other than an independent valuation, trustees do need to ensure they have considered the assumptions and methods underlying the data to ensure it produces a reasonable reflection of the value of the real property in question. For example, does the comparable sales data relate to properties in the same location, with similar features?