If you own property through a self-managed superannuation fund (SMSF), understanding the valuation guidelines established by the Australian Taxation Office (ATO), and how they apply to your SMSF property, can often be difficult to navigate. In this article, we will break down the ATO valuation guidelines, presenting them in an accessible way, with a specific focus on properties held within SMSFs.
Why do the ATO valuation guidelines matter?
The ATO’s role is to ensure that all SMSFs operate within the bounds of the superannuation rules and regulations, safeguarding the integrity of the superannuation system. As part of their role as regulator, the ATO ensures that all assets are reported at market value, and the precise set of guidelines assists trustees in this task. Adhering to these ATO guidelines when obtaining valuations for properties held within SMSFs, ensures accurate reporting, aligning with tax and superannuation laws.
How often should properties be valued?
One key aspect of the ATO valuation guidelines for properties within SMSFs, is the frequency of valuation. The current ATO guidelines suggest that a property held within an SMSF should be assessed against the market annually, and this assessment should be documented. Although, if substantial events like renovations or shifts in the local real estate landscape occur, an updated valuation might be required sooner.
What does ‘market value’ mean?
The ATO's definition of market value is critical in understanding how to conduct property valuations within SMSFs. Market value signifies the price attainable for a property in the open market between a willing buyer and a willing seller, who have reasonable knowledge of the property and are under no compulsion to buy or sell.
What information should be included in the valuation?
To be considered a comprehensive valuation, the following details must be included:
- A clear description of the property, its location, and any distinctive features that could impact its worth
- A clear indication of the current market value of the property. The methodology used to determine this value should be outlined, whether it's based on recent sales data, an expert's assessment, or other factors
- Any comparable properties considered in the valuation process must be specified, along with their relevant attributes. This is an essential part of the valuation as it provides evidence that the valuation is based on objective and supportable data and isn’t just based on one person’s opinion
- An indication of the likely market rental income for the property, as the auditor is required to determine if the income received by the fund is on commercial terms
- The report should mention the date of the valuation, reflecting the property's market value at that specific time.
Who can provide a valuation that meets the ATO guidelines?
Registered and independent valuers, real estate professionals, or online property valuation services can provide valuations in line with ATO guidelines. In most circumstances, a kerbside appraisal conducted by a local real estate agent is sufficient, provided all the above information is included. There may be times when opting for a qualified, independent valuer is more appropriate, particularly when the property’s circumstances are quite unique, or the underlying lease agreements are complex.
The impact of valuations on your SMSF
Trustees, members, and financial and property sector experts must grasp ATO valuation guidelines and their relevance to SMSF properties. Accurate valuations impact the calculation of member balances, contribution limits, and the fund's overall financial health. Failure to comply with valuation requirements could result in penalties and the potential loss of the tax concessions SMSFs enjoy.
Understanding ATO valuation guidelines and their application to properties held within an SMSF is essential for trustees, members, and professionals in the financial and property sectors. However, following these guidelines is easier than it may seem. It primarily involves assessing your property’s value to ensure fairness and accuracy, while remaining compliant with SMSF regulations. By doing this, you're safeguarding the fund's integrity and taking steps to secure a bright future in retirement.
How we can help
To assist you in determining if your property valuation meets the ATO guidelines, BDO’s Superannuation team has compiled a checklist that sets out the requirements.
If you have any questions about your SMSF and property valuations, please contact your local BDO adviser.
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