By Daniel ClementsPartner
16 December 2021
- Australian Tax Office
It has long been the requirement for SMSF trustees to support the value of their Fund’s assets in their annual accounts. However, trustees may not be aware that the ATO has recently updated their valuation guidelines. The ATO has provided clarity on the objective and supportable evidence needed to support real property valuations.
Historically, SMSF trustees have often obtained ‘kerbside appraisals’ from local agents stating what they believe the subject property is likely to sell for as evidence for the market value of their fund’s property investments. This alone is no longer acceptable and the ATO has listed the following examples of various items it considered may be useful, when supporting the value of a property:
- The value of similar properties and recent comparable sales results
- The amount that was paid for the property in an arm's length market – if the purchase was recent and no events have materially affected its value since the purchase
- Independent appraisals from a real estate agent (kerbside)
- Whether the property has undergone improvements since it was last valued
- The rates notice (if consistent with other valuation evidence)
- For commercial properties, net income yields (not sufficient evidence on their own and only appropriate where tenants are unrelated).
Unless the property has been recently purchased by the fund, the trustees should consider a variety of sources to substantiate the market value of real property. Generally, it is not sufficient for valuations to be based on only one item of evidence in the above list.
As per the ATO website, when valuing real property assets for the purpose of preparing the fund's financial accounts and statements, the valuation may be undertaken by anyone, as long as it is based on objective and supportable data. A valuation undertaken by a property valuation service provider, including online services or real estate agent, would be acceptable. However, the valuation must stipulate the supportable data. For example, in the case of a real estate agent appraisal or online report, the valuation should list the comparable sales it relied on.
It is important to note that it’s not the auditor’s job to undertake a valuation. Rather, it is the trustee’s responsibility to provide their auditor with the documents that are requested to support the market valuation of SMSF assets, including real property. The auditor should seek evidence that shows how the asset was valued, including the method used and the data on which the valuation was based. Where the evidence is not sufficient and appropriate to enable the auditor to form an opinion the asset was valued at market value, the auditor must modify their audit report and consider whether an auditor contravention report (ACR) should be lodged.
If you need help assessing the impact of this on your SMSF assets, please get in touch with your local PKF adviser.