SMSF property valuations your auditor can sign off.
Trustees of a self-managed super fund must value all fund assets at market value when preparing the fund’s financial statements each year, under regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994, and must give the approved SMSF auditor relevant, objective and supportable evidence on request. For property, the ATO’s guidance is that a valuation should not rest on a single item of evidence, and that where a valuation is the only source relied on it must specify the supportable data — the comparable sales behind the figure.
What the ATO and your auditor are actually looking for
Assets must be reported at market value in the fund’s accounts each year. Unless the property was recently purchased, the ATO expects trustees to consider a variety of sources, and states that it is generally not sufficient for a valuation to be based on only one item of evidence.
A valuation by a property valuation service provider — including an online service or a real estate agent — is acceptable in principle. But if it is the sole source relied on, it must specify the supportable data, for example by listing the comparable sales it relied on. A one-line kerbside letter with no evidence behind it is one item, not a substantiation.
The evidence should support a value as close as possible to 30 June, which matters most in a volatile market. Where a property has been materially renovated or redeveloped since the last valuation, a fresh independent valuation is the sensible course.
The consequence of thin evidence lands on the trustee. Where an auditor cannot obtain sufficient appropriate evidence to verify market value, the result can be a modified audit report and an Auditor Contravention Report to the ATO.
Source: ATO — Guide to valuing SMSF assets and Verifying the market value of fund assets. General information, not legal or tax advice.
The fund’s accountant preparing the financial statements, the approved SMSF auditor testing regulation 8.02B compliance, and the ATO if the fund is reviewed. The report is structured so the auditor can tick the evidence requirement without coming back with questions.
Questions trustees and accountants ask
How often does fund property need valuing?
Every year. All fund assets must be valued at market value when the financial statements and accounts are prepared, with evidence supporting a value as close as possible to 30 June.
Is a kerbside appraisal from an agent enough?
On its own, generally not. The ATO treats it as one item of evidence and states that a valuation based on only one item is generally not sufficient. If an appraisal is the sole source, it must specify the supportable data, such as the comparable sales relied on.
Who is allowed to do the valuation?
For preparing the accounts, the valuation may be done by anyone provided it is based on objective and supportable data, including a valuation service provider or a real estate agent. Trustees may also consider using a qualified independent valuer, which is what an auditor is most comfortable relying on.
We reported the same value three years running. Is that a problem?
It is the pattern auditors and the ATO look at hardest, because market value is unlikely to be static. If the value has genuinely not moved, the evidence still has to show that for the current year.
Does the property need a physical inspection?
For a full valuation, yes — and it is the difference between an assessed value and an estimate. Where the fund needs an annual update on a property already valued, discuss the scope with us before you commission it.
Can you value a property held through a unit trust?
The underlying property can be valued. How the fund’s units are then valued for the accounts is a question for the fund’s accountant and auditor.
Related for trustees and their advisers
Market value, evidence standards and every deadline, state by state.
What the ATO expects when a value has to be set at a past date.
Retrospective valuations for probate, distribution and the CGT cost base.
Single expert rules, joint instruction, and how the report is tested.