Trustees can expect valuations on property affected by bushfires to have a direct impact on their SMSF, a technical expert has warned.
SMSF Alliance principal David Busoli said while most SMSF trustees with properties in fire-affected areas were unlikely to notice the immediate financial effect on their super, the full impact of the bushfires on contribution eligibility and pension levels would be made obvious at the start of the next financial year.
“Pre-fire valuations will be used for the 2019 financials so will still be a determinant for each member’s 2019 total super balance. They will also contribute to closing pension balances, which will determine the minimum level of pension that must be drawn for the balance of this financial year,” Busoli noted.
“Apart from a possible shortfall of income to fund such pensions, due to a lack of rent from fire-affected properties, the effect of the fires on contribution eligibility and pension levels will not become apparent until the beginning of next financial year.”
He noted transactions relating to the commencement of a pension, including a death benefit pension, could rely on a property valuation that had occurred within the past year, except in cases where the property value had experienced a significant drop before the effective date of the calculation.
“Importantly, the property need not be damaged for its value to drop. This may occur due to a general downturn in the area as could be expected following the large-scale destruction of entire communities we have witnessed,” he said.
In addition, he pointed out the results of individual insurance claims for SMSF properties directly damaged by fire would be unique, depending on elements such as adequate sums insured and replacement versus indemnity value, and in some cases could take years to process.
“The valuation to be applied to any property in such a situation is highly problematic. In cases where the asset is not required to be liquidated, valuations will be difficult and require substantiation, but ultimately the property will be rebuilt and valued definitively at that time,” he said.
Administration and software specialist provider SuperConcepts recently announced it would provide pro bono assistance for SMSF trustees affected by bushfires.