If you have anything to do with Self Managed Super Funds (SMSFs) that include real estate assets, now is the time of year you’ll be thinking about organising your valuations.
The primary concern of any SMSF manager or trustee is growth or income, and second to that is compliance.
In a number of instances, the Australian Tax Office (ATO) recommends that a Qualified Valuer undertake a valuation of SMSF real assets. By ‘Qualified Valuer’ of real estate, the ATO means a ‘Certified Practising Valuer’, or a ‘Registered Valuer’ (Qld, NSW, WA).
One of the major amendments to the Superannuation Industry (Supervision) Regulations (also known as the SIS Act), occurred in 2012. One important change in Section 10, was that the value of assets is now defined as ‘market value’, as opposed to the previously ‘net market value’.
Obtaining advice from a Qualified Valuer for real estate is recommended, as a Qualified Valuer is highly experienced in assessing ‘market value’. When it comes to a definition of ‘market value’ for the valuation of real property the ATO accepts the definition used by the International Valuation Standards Council, being:
“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.
If the ATO itself needs to review a valuation, it is always prudent to have obtained that valuation from an experienced Qualified Valuer, as the ATO will require ‘evidence’ of the valuation method used and the comparable market evidence relied upon.
Typical valuation methods for property, as stated by the ATO include: Comparison Approach, Depreciation Replacement Cost Approach, and the Income based Approach. To accurately assess ‘market value’ based on these approaches, it can be beneficial to have the services of a highly experienced Certified Practising Valuer. Only a well-documented valuation report with suitable evidence and methodologies will satisfy the SMSF Regulations and the ATO.
The situation where a valuation from a Qualified Valuer is generally mandatory is where a capital gain or loss has occurred.
The instances where the ATO recommends obtaining a valuation from a Qualified Valuer are where:
- The value of the asset represents a significant proportion of the fund’s value, and/or
- The nature of the asset indicates that the valuation is likely to be complex or difficult.
For SMSFs an annual value of the assets is of course required, as at the end of each financial year. However the ATO states that a ‘re-valuation’ of real estate assets is not required annually, unless a significant event occurred that may change its value since it was last valued, such as:
- The market value is likely to have changed significantly,
- Major work/improvements have been undertaken to the property, thus greatly affecting the value.
Cases where a ‘market value’ of real estate is required (but not necessarily from a Qualified Valuer) include:
- Preparation of annual financial accounts and statements
- Acquisition of an asset from a related party of the Fund
- Disposal of an asset to a related party (i.e. the sale price should reflect market value)
- Testing whether the market value of the SMSF’s ‘in-house’ assets exceeds 5% of the total value of the Fund
- Determining the value of assets that support a super pension or income stream.
Not only is a Qualified Valuer an expert, but they are an independent party, and therefore the engagement of such a suitably qualified professional should ensure the ATO can find no fault in the valuation of the SMSF asset.
And whilst the primary aim of most when ordering their valuations is compliance, a good valuer should also be able to advise of any value-add opportunities along the way, to improve your growth and income.
For a no-obligation quote, or to discuss your valuation needs, simply click on the box below, and one of our friendly valuers will be in touch.