You bought a property through your self-managed super fund (SMSF) several years ago and have had it valued a couple of times. But is that enough for your annual SMSF accounts and audit?
If you’re used to getting your SMSF property valued every few years, it’s time for a refresher. The Australian Taxation Office (ATO) has previously flagged concerns around SMSF valuations, including property values that don’t change for several years.
So, what do you need to know about SMSF property market valuations? We answer eight common questions, including how often to value your property, who can value it and what evidence your auditor will expect.
See also: CGT, negative gearing & SMSF – Property tax changes
Why does my SMSF property need to be valued?
You need to report all SMSF assets, including property assets, at market value when preparing your yearly financial statements.
This is required under superannuation law (SIS Act and Regulation 8.02B) so your balances, pension calculations and compliance tests (such as the 5% in-house asset rule) are based on current values.
And it’s not just property your SMSF holds directly. If your SMSF holds property indirectly through a unit trust or company, the underlying property needs to be valued so you can calculate the market value of the fund’s units or shares at year-end.
Does an SMSF property need to be valued every year?
Yes. For reporting purposes, every SMSF property must be recorded at market value as of 30 June each financial year in your fund’s financial statements.
That means as trustee you must review the property’s value annually and update the figure if needed – you can’t just carry the same number forward indefinitely without support.
Does an SMSF property valuation need an independent valuer?
No. While your SMSF property must be reported at market value each year, the ATO doesn’t require the valuation to be carried out by an independent valuer every year.
You can use other objective and supportable data or evidence to determine market value, such as a written real estate appraisal or recent comparable sales.
But using a qualified independent valuer may be appropriate if your property represents a significant proportion of the fund’s assets or is complex or difficult to value.
Who can value a property held in an SMSF?
As the trustee, you’re responsible for determining market value, but you don’t necessarily have to determine it yourself.
Depending on the property and circumstances, the valuation can be done by:
- You, the SMSF trustee(s), using market data
- A licensed real estate agent
- A professional property valuation service
- A registered valuer or member of a recognised professional valuation body
- Someone with specific experience or knowledge in valuing that type of property
What evidence do I need to support the valuation?
Unless you’ve recently purchased a property through your SMSF, you should use more than one source of evidence to support its market value. The ATO says that relying on just one isn’t typically enough.
Evidence can include:
- A written agent appraisal backed by recent comparable sales in the same area
- For residential property, recent sales data for similar properties (e.g. Cotality/RP Data) with a brief explanation of how they relate to your property
- A contract of sale if the property was recently bought or sold and nothing material has changed
- A formal valuation report from a registered valuer or professional valuation service
For commercial property, net income yield information can also support the valuation where tenants are unrelated parties.
Evidence not sufficient on its own includes council rates notices, short agent letters without comparables, automated online estimates, last year’s valuation with no update, or the original purchase price/mortgage valuation without additional market evidence.
See also: Important changes to Division 296 for super balances over $3 million
What if my property’s value hasn’t changed?
There’s nothing inherently wrong with reporting the same property value as the previous year, if it still reflects the current market and you have objective evidence to support it.
However, using the same figure year after year without reviewing it could raise questions. So, even if you believe your property’s value hasn’t moved, you should still review it each year and keep evidence showing how you arrived at that value.
What happens if my property is out of date?
If something has significantly affected your property’s value – such as renovations, damage, a change in use or market conditions – you may need a new valuation or other current evidence.
If your auditor can’t get sufficient evidence to support the market value reported, they may need to modify their audit opinion and, if the reporting criteria are met, lodge an Auditor Contravention Report with the ATO.
An inaccurate property value can also flow through to other areas of your SMSF, including member balances and calculations based on the fund’s total assets. In some cases, incorrect valuations can contribute to breaches of super or tax rules – and potential compliance action.
When else will I need to value my SMSF property?
Your annual financial statements aren’t the only time you may need an accurate market value. You may also need to value your SMSF property:
- When starting a pension
- For certain transfer balance cap purposes
- When testing the 5% in-house asset limit
- When buying, selling or transferring an asset involving a related party, where permitted
Different valuation requirements can apply depending on the transaction or event, so get advice before making significant changes involving property in your SMSF.
If you’re preparing your SMSF accounts and audit, check that your property’s 30 June market value is backed by appropriate evidence.
