Super Alert: Valuing fund assets for SMSF annual return

In late March, the Australian Taxation Office (ATO) released a reminder for trustees of self-managed superannuation funds (SMSFs) about the importance of accurately valuing assets at market value each year to meet valuation requirements.

In the article released on 25 March, trustees are reminded that:

Failure to meet valuation requirements may result in additional tax liabilities for the fund and its members, and trustees could face administrative penalties
During the annual audit process, trustees must provide their SMSF auditor with objective and supportable evidence for the valuation of fund assets, including providing all relevant documents as requested by the auditor.

Increased monitoring of valuation compliance

The ATO disclosed its increasing use of electronic data matching to detect funds that neglect annual valuations. Through this technology, they have flagged 16,500 funds that have reported certain asset types at consistent values for three consecutive years. These assets encompass both commercial and residential properties, as well as unlisted companies and trusts.

The ATO has now begun sending targeted messages to these SMSF trustees and their associated auditors, reminding them of the valuation guidelines and will be closely monitoring the valuation approach taken when the SMSF lodges their next annual return. The associated auditors will also be monitored to ensure they enforce the rules and report any funds that fail to comply.

It is important to note that just because a SMSF has not changed a valuation for an asset in the past three years does not mean a contravention has occurred. However, the trustees must be able to support their valuation with objective and supportable evidence. Depending on the asset in question, this may include property valuations from a real estate agent or licenced valuer, current-year financial statements, or third-party valuations.

The longstanding ATO valuation guidelines clearly articulate that assets must be revalued to market value every year. There are also several examples of what is considered to be supportable and objective evidence.

How we can help

Delaying the proper valuation and documentation of fund assets may leave you falling behind on annual reporting, which can be a significant administrative burden for trustees and may require professional assistance when engaging with the ATO.

You can find out more about this topic in our recent insights on SMSF investments and valuations, valuations for properties held in an SMSF and our comprehensive SMSF Audit Considerations and Checklist.

If you have any questions regarding the ATO reminder or would like to discuss the valuation of your SMSF assets, reach out to your local BDO adviser.

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