Asset valuation is a key component of preparing meaningful SMSF financial reports. The investment values adopted will directly impact the rate of return achieved and each member’s total superannuation balance.

Reporting fund investments at market value on an annual basis is required to confirm that your SMSF has complied with relevant super law for:

• preparing the financial statements of the fund
• determining an individual’s total super balance
• acquiring assets from related parties
• ensuring that investments are made and maintained on an arm’s length basis
• determining the account value for super pensions
• determining the amount counted towards an individual’s transfer balance cap when a pension commences

Given the impact that asset valuations have the Australian Taxation Office has issued valuation guidelines for trustees to follow. These guidelines set out the type and timing of valuations required for certain events as well as specific requirements for different asset classes. If the guidelines are followed the Taxation Office has stated that they will generally accept the valuation.

Valuations for the Annual Financial Statements

For SMSF annual financial statements ALL assets must be accounted for at market value and that value must be based on objective and supportable data. Generally anyone can undertake a valuation if it is carried out on this basis, however, the use of a qualified independent valuer should be considered if either:

• an asset represents a significant proportion of the fund’s value
• the nature of the asset indicates that the valuation is likely to be complex.

The value of cash, term deposits, listed investments and managed funds is readily available but direct property and unlisted investments pose a greater challenge.

Direct Property

The Taxation Office have stated that an external valuation is not required each year, however a recent valuation would be prudent if there has been a significant event that may have affected the value. A significant event could be a change in market conditions due to a pandemic, a natural disaster such as a bush fire or flood or major improvements to the property.

If the trustees choose to value the property themselves the following relevant factors may be considered:

• the value of similar properties
• the amount that was paid for the property when purchased from an unrelated party
• independent appraisals
• rates valuations
• whether the property has undergone improvements since last valued
• for commercial properties, net income yields.

The fund’s auditor would expect to see signed documentation detailing how the value was arrived at, including copies of all the objective and supportable data to back up the value included in the financial statements.

Unlisted Securities and Trusts

Trustees have certain duties and responsibilities designed to protect and increase a member’s benefits for retirement. It is expected that trustees will be aware of the value of an asset at the time of acquisition and have an understanding of its potential for capital growth and capacity to produce income.
When valuing an unlisted security such as a share in a private company or a unit in an unlisted trust for the annual financial statements, the Taxation Office expects trustees to take into account both of the following factors:

• the value of the assets owned in the private company or unlisted trust
• the consideration paid on acquisition

They also suggest that it may be wise to use an external valuer if the valuation is complex.

The other relevant factors that Trustees should consider for valuing unlisted investments are:

• the price paid for shares or units that have changed hands in the last 12 months
• the price and explanations provided by the financial officer of the unlisted company or trust
• the net asset value as shown in the entities’ financial statements where market value reporting is used
• the detailed valuation based on maintainable earnings

As with property valuations, Trustees need to base their valuation on objective and supportable data, document this clearly and provide evidence for their auditor to see.

The full Taxation Office guidelines can be found here

If we can assist with the documentation requirements please contact us.