Administration, Auditing, Legislation, Tax

Valuation manipulation a compliance issue

Market value SIS regulation 8.02B Division 296 tax superannuation earnings tax

Attempting to avoid the impact of the $3 million soft cap tax by providing undervalued asset assessments is likely to create more problems for SMSF trustees than it solves.

Trustees seeking to lower their tax liability in anticipation of the proposed tax on total super balances over $3 million by submitting inaccurate asset valuations have been warned the fund will fail to meet regulatory obligations if such an action is taken.

Accurium head of education Mark Ellem acknowledged the Superannuation Industry (Supervision) (SIS) Regulations would prohibit trustees from attempting to lower their total super balance below the $3 million threshold and avoid attracting the additional 15 per cent impost.

“You have to satisfy SIS Regulation 8.02B. You have to provide the evidence that supports the asset value in each year’s financial statements. The trustees need to address the issue of market value each and every financial year,” Ellem said.

“They can’t say we got a valuation of property two years ago, you don’t need one for another year. [That’s] an urban myth. You need to address market value each and every year and provide the evidence to support that market value.”

He emphasised the need for an auditor to sign off on the valuation of a fund’s assets annually would prevent such a strategy as the supporting documentation would unlikely stand up to scrutiny during an audit.

This could lead the auditor to file a contravention report against the fund, drawing the attention of the regulator.

“The ATO has their valuation guidelines on how to determine market value and then the auditor must be happy that you have valued it at market value,” Ellem noted.

“It’s not the auditor’s role to determine market value. It is their role to assess the sufficient appropriate audit evidence that the trustees submit to the auditor to determine that [it] supports the value used.

“So have a higher than market value? No, you can’t. It must be market value. Have a lower than market value? No, you can’t. It must be market value.

“[There’s] no change at all from prior years. [The Division 296 tax] doesn’t make any changes there. You have to continue to comply with SIS Regulation 8.02B since the 2012/13 financial year.”


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