From 1 July 2012 it became a mandatory requirement by the ATO that assets held in a self-managed superannuation fund be valued at market value.

Whilst this appears to be the preferred method by many accountants with respect to listed securities there is now a structured obligation to do this for all assets – such as property, art and unlisted assets.  Trustees who fail to apply this will face sanction if they are seen to have deliberately breached these rules.

The benefit of valuing all assets at least annually provides trustees a true picture on the value of their fund and helps to provide more accurate information for planning for retirement.

What is Market Value?

Market Value is simply defined as the amount that a willing buyer of an asset would reasonably be expected to pay from a willing seller assuming the acquisition was at arms-length (occurred after the appropriate amount of marketing was done for the asset and both the buyer and the seller acted with knowledge and prudence in respect of the sale).

Valuation Guidelines

The ATO have issued set guide lines for valuing assets and the appropriate valuation method will depend specifically on the asset that is being valued.  All assets should have their value considered annually.  Cash and Listed Securities are easily valued and should be adjusted annually however the complexity of certain assets may mean it is not practical to have a formal valuation done each year.  It is not the ATO’s intention for the market valuation process to be onerous and or expensive so there are some assets which have slightly different allowances placed against them. 

Real estate does not necessarily need a formal valuation done each year by a licenced Valuer unless there is a significant event that occurs during the year which may affect the previous valuation.  A significant event could be one that directly involves the property itself, involve the fund on a general level such as one of the funds members going into pension mode or if the asset represents a significant portion of the funds value. 

A valuation can be conducted by a licensed Valuer or a person without formal qualifications such as the trustees (known as a trustee valuation). Whoever the person is that is conducting the valuation they need to ensure that they are objective, have supporting data to support the valuation and be subject to a reasonable process that takes into account all the requirements specified. 

The requirements for a valuation are as follows;

  1. Conducted in good faith
  2. Result from a reasoned and rational process 
  3. Be supported and justified to a third party such as the funds auditor and the ATO. 

Trustees must ensure that their valuations are well supported as they are more likely to be challenged than one that is prepared by an independent or qualified Valuer.  We still maintain however that a formal valuation be done at least every three years.

The following chart extracted from the ATO valuation guidelines and provides a simple summary on the various valuation requirements

No matter what form the valuation takes - whether it is a formal qualified valuation or trustee valuation, trustees should ensure they keep the appropriate records to support how the valuation of an asset was determined.  The ATO may at anytime as a part of its compliance program review a valuation provided by a SMSF and request the supporting documentation to determine if the method of valuation and the valuation itself is deemed appropriate.