SMSF Property Asset Valuation

There seems to be a constant misunderstanding of SMSF property valuation required to be done every 3 years when in reality, that is not the case anymore as seen in the Regulation of 8.02B. In our blog ‘Asset Valuations Guidelines For SMSF’ we’ve touched on asset property valuation briefly but we’ll be going into further depth to understand the why, how and when.

Why must SMSF property investment be revalued?

The trustees of self-managed superannuation funds (SMSFs) should revalue their property holdings for the four major reasons listed below:

• Pension
  • In order to appropriately calculate the minimum and maximum pension amounts when an SMSF begins a pension, it is necessary to determine the value of the underlying investments supporting that pension. This must be done no later than 12 months before the pension is to be paid out.
    
• Performance
  • Investment performance, which must account for any fluctuation in the value of real property, is crucial for SMSF members and trustees.

• In-house assets
  • The maximum amount that can be invested in ‘in-house’ assets by an SMSF is 5%.  All of the fund’s holdings must be appraised at fair market value if this ratio is to be calculated appropriately.
    
• Contribution Caps
  • To ensure accurate determination of an individual’s total superannuation balance, all assets in the SMSF must be evaluated at their market value. The eligibility of making non-concessional contributions is subject to the individual’s total superannuation balance (TSB) being less than $1.7 million at the end of the previous financial year on 30th June.
  • From 1st July 2018, members whose total super balance is below $500,000 on the 30th of June of the prior year can contribute more than the general concessional contribution cap and make additional concessional contributions for any unused amounts. 2020FY is the first year which they can make additional concesssional contribution. Unused conceesssional contribution can be carried forward up to 5 years.

When to revalue your SMSF property?

According to Tax Determination TD2000/29, annual valuations are necessary if members are continuing to make contributions to the fund and maybe beginning a new pension each year.

In actuality, however, properties have to be re-evaluated at market value annually on June 30th, marking the end of the fiscal year.

Who can value your asset?

When determining the fair market value of a piece of real estate that constitutes a sizable portion of the fund’s assets, the trustees may seek the advice of a professional independent valuer (external valuer). Regulation 8.02B of the SISR does not mandate annual external valuations of real property, but trustees may do so if they so wish. When preparing the annual statements and accounts for the fund, the trustees are responsible for determining whether or not the external valuation can be used to support the valuation of the fund’s real property.

Trustees shouldn’t rely on an outside valuation any longer if it’s become materially inaccurate or the value of the property has changed significantly since the last valuation (due to, say, a change in market conditions or events like a natural disaster or global pandemic like COVID-19). Instead, they should get a new valuation or other sources of evidence supporting the valuation.

There are other methods for providing proof of the market value of a property apart from obtaining an external valuation, and these include:

• Obtaining an independent assessment from a real estate agent, usually conducted from the street (known as a kerbside appraisal).
• Providing a contract of sale if the purchase is recent and no significant events have happened to the property that could impact its value.
• Providing recent sales data for comparable properties.
• Providing a rates notice if it is consistent with other valuation evidence.
• Using the net income yield of commercial properties as evidence, which is only acceptable if it is combined with other forms of evidence and tenants are unrelated

A real estate valuer refers to a person who is registered or licenced to perform real estate values in accordance with the laws of the State, Territory, or Commonwealth in which the property is located.

Any valuer working in the state of Queensland must first register with the Valuers Registration Board of Queensland and a certified land valuer is required to conduct land values in Western Australia.

Valuers need to be certified as either a Certified Practising Valuer or a Certified Professional Valuer by the Australian Property Institute or the Australian Valuers Institute, respectively. The Certified Practising Valuer (RICS), the Chartered Valuation Surveyor (API), and the Certified Practising Valuer (AVI) are all institutes that offer relevant certifications.

In summary, for reporting years beginning on or after 30 June 2013, Regulation 8.02B mandates all assets must be valued at market value which means that the valuation of properties must be based on objective and supportable data each year.

Contact Us

Mint Super Audit is aware of the significance of accurate SMSF asset valuations and their impact on your fund’s compliance and performance. Due to the constant evolution of the ATO’s anti-avoidance rules and regulations, it can be difficult to keep up with the requirements and ensure that your SMSF is meeting its obligations. 

Our team of SMSF audit specialists can provide you with streamlined online audit services to ensure that your SMSF is compliant and operating optimally. Contact us today to find out how we can assist you with your SMSF audit requirements.