Super Alert: Reporting on the market value of Real Property held in a SMSF

The Australian Taxation Office (ATO) has issued a number of statements setting out their expectations for how a self-managed superannuation fund (SMSF), that holds Real Property, determines and reports the market value of the investment at year-end.

Below is our summary of the ATO’s requirements for SMSFs to determine the market value of Real Property at 30 June each year.

  • The valuation of the property should be based on objective and supportable data.
  • Depending on the situation, a valuation may be undertaken by a:
    • Registered valuer 
    • Independent real estate agent, in the form of a kerbside appraisal
    • Professional valuation service provider
    • Member of a recognised professional valuation body
    • A person without formal valuation qualifications but has experience or knowledge in a particular area.
  • The valuation must stipulate the supportable data (e.g. in the case of a real estate agent appraisal or online report, the valuation should list the comparable sales it relied on). Accordingly, the ATO recommends that a market appraisal or valuation of Real Property should include the following:
    • The value of similar properties and recent comparable sales results
    • The amount paid for the property in an arm's length market, if the purchase was recent and if any recent events have materially affected its value since the purchase
    • Whether the property has undergone improvements since it was last valued
    • For commercial properties, the ATO believe net income yields are not sufficient evidence on their own to determine market value.   
  • A SMSF trustee must be able to demonstrate that the valuation was determined using a ‘fair and reasonable’ process. Generally, a valuation is considered fair and reasonable when it meets the following:
    • It takes into account all relevant factors and considerations likely to affect the value of the asset
    • It has been undertaken in good faith
    • It uses a rational and reasoned process
    • It is capable of explanation to a third party.
  • Further, a SMSF trustee should consider using a qualified independent valuer, if:
    • The value of a fund asset represents a significant proportion of the fund's value
    • The nature of the asset indicates the valuation is likely to be complex or difficult.

Action Required

As property values are often affected by changing market conditions, or events such as natural disasters or global pandemics (such as COVID-19), we recommend arranging a new valuation or market appraisal for any Fund properties immediately after 30 June 2021.

If you have any questions regarding these changes, please contact your local Superannuation adviser.