The ATO has confirmed it will be examining SMSF asset valuations very closely in the immediate term due to the critical nature of these practices in regard to newly introduced elements such as the transfer balance cap, total super balance and capital gains tax (CGT) relief.
“Clearly the issue of asset valuations in SMSFs comes sharply into focus and I have to say the importance of valuation in SMSFs being supported by objective evidence and data can’t be underestimated in this environment,” ATO SMSF segment assistant commissioner Kasey Macfarlane told attendees at the Tax Institute National Superannuation Conference in Sydney recently.
“The ATO will be monitoring changes in behaviour in relation to SMSF asset valuations as a result of the [system] changes and it’s probably needless to say that where we see significant reductions in asset valuations in SMSFs, particularly if coincidentally it puts somebody just below a particular cap or limit, then that will attract our close scrutiny.”
Macfarlane pointed out the tax office’s regularly published valuation guidelines still apply in the context of the new measures and the guidelines themselves had been updated to reflect the recent changes to the superannuation system.
While the ATO believes valuations of cash products and listed securities will be fairly straightforward, assigning a value to assets such as property will be more complex.
Macfarlane emphasised the issue was not just about assigning what trustees thought was a single external and objective value to an asset of the fund.
“The regulatory rules do actually require an SMSF to determine the value of its assets each financial year. So even though SMSFs might be looking to rely upon a prior-year external valuation, the trustee still has to turn their mind to the question and think: ‘Is that still an appropriate reflection of a property in my SMSF?’” she said.
“[They have to consider] have there been other factors and circumstances that mean that that valuation is no longer valid.
“So you still need to be able to objectively demonstrate that that particular valuation is still applicable.”
She revealed the ATO was not averse to accepting property valuations from real estate agents, but warned there could be an element of risk attached to this course of action.
“Often in those cases the real estate agent might provide a range of values within which they consider that the property’s value sits,” Macfarlane said.
“From our perspective, any sort of value within that range will ordinarily be okay, but the thing I would want to stress is that what would concern us is if we see different values within that range being selected for different purposes.
“So if we saw an SMSF picking a value at the upper end of the range for the transitional CGT relief, but then picking a value at the lower end of the range for the transfer balance cap, you can be sure that you’ll be hearing from us.”''