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Lynda MacPherson

May 31, 2023

Yearly property valuations

in SMSF Technical Forum

I am in discussions with one of the accountants we deal with regarding the regularlity of property valuations. There have been several webinars run through SMSFAA stating that the old "3 year valuation" is no longer acceptable (probably never was) and that a yearly valuation is required or a Part A qualification needs to be considered. The accountant is asking where the authority for this comes from - she states the ATO guidelines on valuation do not state that a yearly revaluation is required unless there have been signficant events/changes.

The yearly requirement is obviously problematic where it's a commercial premise - agents often charge for these now, add in a title search etc and the cost becomes an issue.

I'm not asking advice around methods to value - I'm asking for confirmation that a yearly valuation IS required, and if so, the legislative backing for this so I can pass on to both my audit clients and my own SMSF clients.

9 comments

Comments (9)

Unknown member

Jun 16, 2023

Im checking this issue now as recall that it may not be acceptable to use a valuation by the existing agent for a rental property.

Unknown member

Jun 02, 2023

I won't hesitate to tell you that the ATO count a trustee declaration as no evidence. Know this for a fact.

THE AUDITORS INSTITUTE

Jun 02, 2023

Replying to

Hi David

Thanks, can you please advise what the ATO required in your example.

Valuations can be a difficult area for auditors and there are differing views. The ATO has reported auditors to ASIC in relation to insufficient audit evidence re market values of investments.

Refer:

https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-328mr-asic-acts-against-six-smsf-auditors/

In the ATO's valuation guidelines they state:

"You should no longer rely on an independent valuation if it:

has become materially inaccurate, or
the asset's value has changed significantly since it was last valued."

The example declaration was for the trustees to explain why they have relied on a valuation from an earlier year. The more explanations and documentation the trustees can refer to the better to argue their position.

A recent article re valuations can be found at:

Thanks

SMSF AAA

Unknown member

Jun 02, 2023

Replying to

An ATO audit of a SMSF auditor recently. The ATO told him a trustee declaration on his audit file was worthless.

ANTONELLA PANUCCIO

Jun 02, 2023

Great Reply thank you

THE AUDITORS INSTITUTE

Jun 02, 2023

Hi Lynda

The ATO's valuation guidelines were updated 4/11/2022 and are found at:

https://www.ato.gov.au/super/self-managed-super-funds/in-detail/smsf-resources/valuation-guidelines-for-self-managed-super-funds/

SIS Regulation 8.02B requires that:

"When preparing accounts and statements required by subsection 35B(1) of SISA, an asset

must be valued at its market value".

On the basis of this SIS regulation yes the Fund's investments such as property should technically be valued each year.

It has been industry practice to get a valuation done every 3 years.

My view is that to meet the requirement to value assets such as property at market value each year that the trustees in years when a valuation has not been obtained at a minimum consider the property value and sign an annual declaration that they have considered the value at 30 June. That is as you note consideration has been given to any "significant events / changes".

Wording such as the following could be used:

RESOLUTION OF TRUSTEE OF XYZ SUPER FUND DATED 30 JUNE 2022

PRESENT : Julian May Donna May

TRUSTEES ASSESSMENT OF REALISABLE VALUE:

The Chairperson reported that -

1. The investment property situated at 499 Deanley Court, Dandenong VIC 3175 was independently valued on 30 June 2021 for $1,000,000.00.

2. In line with Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) Investments of the fund are required to be measured at net market value at reporting date or at commencement of paying members benefits.

IT WAS RESOLVED THAT :

1. With regard to current market values of similar properties in the local area, current rental yield and most recent council rates notice valuations, the Trustees resolve that the property value is maintained at the value noted above as at 30 June 2022.

CLOSED : There being no further business the meeting was then closed. Confirmed as a true record of the meeting held this day.

Julian May Donna May

Director Director

If other forum members have a view please let the forum know.

Thanks

SMSF AAA

Lynda MacPherson

Jun 02, 2023

Replying to

Appreciate the clarification and opinion - thank you

Michael Mackenroth

Jun 05, 2023

Replying to

Any market value assessment of real estate is a guess. The only way to get a true market value is to have a contract and of course that is simply not possible. I am not an expert in real estate values and neither, I might add, is the ATO. In addition, the market is so volatile at the minute. For example I recently saw an SMSF where a property was auctioned with a reserve of $1 million. It sold for north of $1.3 million. How are auditors supposed to assess that market value?

At the end of the day, excluding the trustees, who are not experts, what do you have - realestate.com and the like, rates notices, curbside appraisals by a real estate agent etc. At best, get as many as you can and average them.

Unknown member

Jun 05, 2023

Replying to

You are missing the point if you think the ATO are telling us as auditors that they want a true market value to be reported. What they want if for an auditor to have on file sufficient appropriate audit evidence to support the balance sheet line item for the property and a trustee declaration fails as evidence on its own. In such a case the ATO would expect the auditor to qualify.