When MUST property in a SMSF be revalued?
The ATO in Superannuation Circular 2003/1 has stated
“self managed superannuation funds should use market value reporting for their financial statements”
It uses the phrase “should use market value reporting” – NOT “must use market value reporting”
SMSFs are generally not considered to be reporting entities, and hence they are not forced to comply with the same strict reporting standards as larger superannuation funds.
However, the independent auditor of the SMSF each year must ensure that the financial statements are presented are a fair and accurate representation of the assets of the fund.
The following is an extract from a 2011 SMSF audit report:
The auditor of the SMSF must be provided with evidence that the valuation of any property held by the SMSF is valued accurately enough for them to sign off on the above Auditor’s Opinion.
The general rule of thumb used by the majority of SMSF auditors is that property investments held by a SMSF must be valued at least every three years.
There are some situations where property held by a SMSF must be revalued on a more frequent basis:
- When a pension is commenced, a valuation from within 12 months prior to the commencement of the pension must be used
- When the auditor believes that the valuation used in the accounts is either too high or too low
- Where the SMSF has in-house assets and the auditor needs to ensure that the 5% in-house asset ratio has not been exceeded
The most important (and most common) exception of the above three is when a pension is commenced. Many SMSF members who have started a pension still contribute to their fund on an annual basis. This means that a new pension is potentially started each year. In this situation, Tax Determination TD 2000/29 will require the trustees to undertake a valuation each year, as the valuation must be within 12 months prior to the commencement of the pension.
Who can undertake the valuation?
When it comes to obtaining the actual valuation of a property, it DOES NOT always needs to be done by an independent valuer. It is not so much who does the valuation – rather how the valuation is performed which is the key factor in determining whether the valuation can be relied upon by the auditor or not.
Valuations can be conducted by:
- Independent valuers
- Real estate agents
- Other unqualified persons (including trustees of the fund)
From an auditors perspective, something from an independent party holds a lot more weight than something from a trustee of a SMSF.