Are you up to date on your SMSF investments and valuations?

Why market value is important

The value at which superannuation fund investments are recorded impacts the value of a member’s account or balance in the SMSF. This can impact the ability of members to make certain contributions to their super (where a member’s total superannuation balance is greater than AUD $1.7million). If members are drawing a pension from the SMSF, it will also impact the minimum pension amount that must be drawn each year.

It is important that the SMSF trustees neither under nor overvalue their fund investments.

The ATO’s approach

The ATO has provided guidance in relation to the valuation of SMSF investments, which can be found on their website.

While it is important for trustees to ensure the fund investments are at market value each year, there is not a requirement that independent valuations be conducted each year. The ATO guidelines are that any trustee valuations of fund investments must be based on “objective and supportable data”. That is, the trustees must be able to demonstrate what information they relied on in forming their opinion as to the value of fund investments.

Valuation guidelines

Different investment or asset classes have different factors that must be considered when assessing the market value of each investment. The table below provides some guidance for these..

Asset Class or Type of Investment	Valuation guidelines
Cash and term deposits	Balance of account at 30 June.
Listed securities	ASX closing price at 30 June.
Loan or debt instruments	Nominal or face value Trustees must consider recoverability/impairment – will face value be recovered/recouped by the trustees?
Residential property	Property appraisal or valuation. Trustees must be able to demonstrate that any consideration of value has taken into account comparative sales data of similar properties in similar areas.
Commercial property	Independent Valuation or Appraisal Capitalisation of yield (this assumes a market value rent is paid) Are there factors that may impair the valuation? Is the property vacant? Is the property run down?
Unlisted/private securities	Independent valuation and documentation of valuation methodology Income Yield (dividends/distributions) – what is the expected return on this type of investment? Recent buy/sell transactions – what is someone else prepared to pay? Are the underlying assets/operations relevant in determining the value that they equities could be sold for?
Gold bullion	Determined based on weight of bullion and year end commodity prices.
Crypto currencies	Determined based on quantity held and year end currency prices.
Collectible or personal use assets	Depends on what type of asset or investment is held, and could include: An Independent valuation Gallery guides Web based auction sites. *There is a requirement to obtain an independent valuation from a qualified independent valuer of collectibles, if the collectible asset is to be sold to the member or a related party.*

Your auditor’s approach

Investment valuation is a key area of audit focus for the 2021 financial year (and a focus of the ATO). This is particularly critical regarding property investment. The past 12 to 18 months have seen, in some cases, significant increases in property values, depending on the type and location of the property.

Most auditors will be looking for current valuations or appraisals to support any trustee assertion as to the market value of an investment. It may not be enough to simply carry the asset at the same value as the prior year, unless this can be confirmed as appropriate. Auditors will be looking for external validation of market values from real estate agents or valuers.

For all valuations, when preparing documentation to present to your auditor, remember it is not just the value that is important but how the trustees arrived at that valuation. A document or minute simply quantifying the value will not satisfy the auditor, they will want to know what information or data was considered and copy of that information should be provided to the auditor.

It is not just the ‘what’ which is important, but the ‘how’.

How we can help

Managing SMSF investments can be a tricky process. For more information on how the legislation applies to your SMSF, please reach out to your local BDO adviser.

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