SMSF trustees are required to annually review their fund’s investments to determine its market value. The Australian Taxation Office (ATO) considers this one of the most important obligations of an SMSF trustee.

Shirley Schaefer, BDO Partner, Superannuation outlines why market value is important, and provides an overview of the ATO’s approach in relation to the valuation of SMSF investments.

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.

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’.

Seeking help

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

This article was published at bdo.com.au on 10 February 2022.

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