A self-managed super fund reports its assets, including property, at market value every year, and the fund’s auditor checks the evidence. This guide sets out what the super law and the ATO’s guide to valuing SMSF assets say about property, sorted into five things trustees and auditors look at: the purpose, the date, the method, the evidence and independence.
Why an SMSF values its property
The trustees must make sure the fund’s accounts and statements are prepared each year (section 35B of the Superannuation Industry (Supervision) Act 1993), and regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994 says assets must be valued at market value in them. The ATO’s guide lists other times a value shows the fund has complied with super law, including:
- acquiring assets from related parties, which is generally prohibited, with exceptions that must be at market value
- making and keeping investments on an arm’s length basis
- checking that in-house assets do not exceed 5 per cent of the fund’s assets
- working out members’ total super balances at 30 June each year, and the value of assets supporting a pension when it starts
What market value means for a super fund
The super law has its own definition. Market value is the amount a willing buyer of the asset could reasonably be expected to pay a willing seller, assuming that (section 10 of the Act):
- the buyer and the seller deal with each other at arm’s length
- the sale happens after proper marketing of the asset, and
- the buyer and the seller act knowledgeably and prudentially.
It is a hypothetical sale on the open market, not a price agreed with a member or a relative.
What trustees and auditors look for
The ATO’s guide says a valuation is generally fair and reasonable when it is based on objective and supportable data, considers all relevant factors, is done in good faith, uses a rational and logical process and is capable of explanation to a third party. In practice that means five things.
1. The purpose
A value is for something: the annual accounts, a purchase from a related party, or a member’s pension. The ATO’s SMSF guide says to read it with its general guide, Market valuation for tax purposes, which says a valuation should be specific to the tax and superannuation provision it is applied to. Tell the valuer every purpose at the start.
2. The date
For the annual accounts, the value is at the 30 June the accounts are made up to. For a purchase or transfer from a related party, it is at the date the fund acquires the asset. Section 66 generally prohibits those acquisitions, and some of its exceptions, such as business real property, apply only if the asset is acquired at market value. The ATO’s view in SMSFR 2010/1 is that this means its market value at the time the fund becomes the owner. The ATO’s guide also says that after a significant event affects an asset’s value, such as a natural disaster or a change to the character of the asset, trustees should get a new valuation, use one obtained after the event, or get other evidence.
3. The method
The ATO expects a rational and logical process. For real property, its guide lists factors that may be relevant:
- the value of similar properties and recent comparable sales
- the price the fund paid in an arm’s length purchase, if it was recent and nothing has materially affected the value since
- an appraisal from an independent real estate agent
- improvements since the property was last valued
- for commercial property, net income yields, which the ATO says are not enough on their own and suit only where the tenants are unrelated
4. The evidence
Unless the fund bought the property recently, the ATO’s guide says trustees should consider a variety of sources, because a value based on only one item of evidence is generally not enough. If a valuation from a property valuation service provider is the only evidence, it should set out the supportable data it relied on, such as the comparable sales.
Trustees keep the evidence of how each value was reached and give it to the auditor. The auditor can ask for documents, and the Act requires trustees to provide documents relevant to the audit report that the auditor requests in writing within 14 days (section 35C). The accounts and statements themselves are kept for 5 years after the end of the year they relate to (section 35B).
5. Independence
For the accounts, the ATO’s guide says trustees are not required to get a valuation by a “qualified independent valuer”, but should consider one where an asset is a significant proportion of the fund’s value or the valuation is likely to be complex or difficult. In the ATO’s terms, an independent valuer is not a member of the fund or a related party of it, such as a relative, and is impartial, unbiased and not influenced, or seen to be influenced, by others.
The ATO says super law requires a valuation by a “qualified independent valuer” only when certain collectables and personal use assets, such as artwork, jewellery or vintage cars, are disposed of to a related party. For other assets, the guide treats independence as something to consider, especially for large or complex ones.
Who does what
| Who | Their part |
|---|---|
| The trustees | Value the fund’s assets at market value for the accounts, base each value on objective and supportable data, and keep the evidence |
| The approved SMSF auditor | Checks the valuation as part of the annual audit without valuing the assets, and can ask for documents or seek an independent valuation |
| The ATO | May review a valuation in its compliance work and ask for evidence and documentation of the method used |
| A valuer, if the trustees engage one | Values the property at the date and for the purpose stated, and sets out the evidence and the method in a report |
How often a new valuation is worth considering
The fund reports a market value every year, but that does not always mean a new valuation report. The ATO’s guide says a fund with a valuation from a “qualified independent valuer” does not have to get a new one each year. The trustees must still consider whether the earlier valuation supports the value, and should document how they decided. If it has become materially inaccurate, or the value has changed significantly, they should get a new valuation or use other evidence.
Where our reports fit
Our Desktop CGT Valuation, $149 including GST, values a standard house, unit, townhouse or vacant lot from sales evidence and records, without a visit. The Inspected CGT Valuation, $495, adds a visit by the valuer. Both list the comparable sales the value rests on, set out the method, and are reviewed and signed by a property valuer. Commercial, rural and development property, and anything likely to be worth more than $3 million, is quoted before anything is booked.
For a standard home or unit, a desktop valuation may suit a routine year, and an inspected one where it is warranted, for example after renovations or damage, after a significant event, or where the property is a large share of the fund. The Australian Property Institute, a professional body for valuers, describes a desktop report as an indicative value only, not a valuation report: see desktop or inspected. The trustees decide which suits, and the auditor decides what evidence they ask for. See for SMSF trustees and auditors and SMSF property.
We value property. We do not give tax, super or audit advice. The trustees decide the fund’s values, and the auditor decides what evidence they ask for.