Valuing Property in Your SMSF
For trustees of a self-managed super fund (SMSF) holding property, one of the most important things you need to do each year is to value the assets held in your fund.
You must determine the 'market value' as at 30 June each year. This value is then reviewed as a part of the Audit process.
Currently this value is used to give a better idea of the amount each member has sitting in super.
Concerns have arisen regarding some funds maintaining consistent asset values across multiple income years without proper justification. This includes residential and commercial properties, as well as investments in unlisted companies and trusts.
Where any asset has had the same value reported for 3 years in a row, this is being flagged by the ATO as being high-risk, and it is expected that the ATO will be reviewing these funds more closely.
As a result, SMSF Auditors are now coming under pressure to issue auditor contravention reports (ACRs) for any potential breaches of market valuation rules – with the risk being a loss of their licence.
Targeted communication is also being sent to trustees and auditors to ensure that everyone is involved with the rules surrounding the valuing of assets at market value annually.
Incorrect valuations may result in trustees being issued with administrative penalties (fines).
Valuation Report: You can engaging a qualified and independent property valuer. A professional valuer will assess the property's market value objectively, considering factors such as location, size, condition, and recent comparable sales in the area.
The report you receive should outline the methodology used to determine the property's market value and provide supporting evidence, such as comparable sales data and market trends.
Recent Sales Data: You are able to review recent sales data for similar properties in the same area. Online real estate websites, local property sales records, and reports from real estate agents can provide insights into recent sale prices of comparable properties.
To be considered a similar property the size, location, amount of land attached, number of rooms and the condition of the property should all be the same, or as close as possible.
You should not rely on one single property – I would suggest evidencing 3-5 properties.
When using this option you need to consider any unique characteristics of the property that may impact its market value, such as renovations, upgrades, or changes in local zoning regulations. These factors need to be taken into account.
Please keep all document relating to your Valuation Process. Keep thorough documentation of the valuation process, including any correspondence with the valuer, what sales data you reviewed, and the information you considered when determining the market value. This documentation will serve as your evidence so please send copies of this through to your Accountant with your trustee valuation documentation each year.