SMSF Trustees Must Know the Value of Their Investments

Posted on June 12th, 2013 · Posted in News

One of the big changes trustees of self-managed super funds will have to deal with from July 1 is the requirement to value all investments at market value each year. What was originally regarded as good practice by the Australian Tax Office (ATO) is now something it can enforce due to a change in legislation passed during the 2013 financial year.  For many investments held by SMSFs, obtaining a market value will be relatively easy by using a yearly valuation statement.

However, the ATO has now issued guidelines with regard to valuing other investments that do not have a market value listed at the end of each financial year. Trustees of SMSFs cannot ignore this requirement and the ATO has indicated it will be auditing valuation methods used.  During an ATO audit SMSF trustees may be asked to provide evidence of the valuation method used so the auditor can assess whether it is acceptable.

One of the most common investments of SMSFs that would require a valuation is property. There are three valuation methods the ATO deems acceptable. They are the comparison approach, depreciated replacement cost approach and the income-based approach.

Under the comparison approach, sales of similar properties are reviewed. Aspects such as location, accessibility, utility services, town planning zoning and restrictions, size of the property and land and any other relevant factors need to be taken into account in arriving at the valuation.  The other two acceptable valuation methods are very complicated and in most cases would be difficult for SMSF trustees to use. One way of arriving at a valuation for a property that will involve no work by the trustees, could be a valuation by an independent third party that takes into account all of the relevant facts.

Do you have a SMSF? We recommend that you speak with a Financial Advisor about the upcoming changes & implications on your SMSF.  Talk to us today to help you strengthen your financial future and put you in touch with trusted financial advisors.