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  • General valuation principles

    You must be able to demonstrate that the valuation has been arrived at using a 'fair and reasonable' process. Generally, a valuation is considered fair and reasonable where it meets all 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.

    In addition, some classes of assets must be valued and reported in a specific way.

    On this page:

    Checklist for obtaining valuations

    Some assets must be valued in a particular way – these are summarised in table 2.

    Table 2: Events and valuations requirements

    Event

    Valuation requirement

    Preparation of SMSF financial accounts and statements.

    Based on objective and supportable data

    Collectables and personal use assets – acquired on or after 1 July 2011 and transferred or sold to a related party after that date.

    Qualified independent valuer

    Collectables and personal use assets – acquired before 1 July 2011 and transferred or sold to a related party before 1 July 2016.

    Transfer made at arm's length price that is based on objective and supportable data

    Collectables and personal use assets – acquired before 1 July 2011 and transferred or sold to a related party after 30 June 2016.

    Qualified independent valuer

    Acquisition of an asset from a related party of the fund.

    Acquired at market value that is based on objective and supportable data

    Disposal of an asset to a related party of the fund.

    Sale price should reflect a true market rate of return

    Testing whether the market value of the SMSF's in-house assets exceeds 5% of the value of its total assets.

    Based on objective and supportable data

    Determining the value of assets that support a super pension or income stream and from 1 July 2017, count towards the transfer balance cap.

    Based on objective and supportable data

    In some circumstances a reasonable estimate may need to be made.

    Determining market values of assets that are eligible for transitional CGT relief.

    Based on objective and supportable data

    Determining the market value of assets supporting members' retirement income streams and accumulation accounts for the purposes of calculating the members' total super balances.

    Based on objective and supportable data

    We recommend the use of a qualified independent valuer where the value of the asset represents a significant proportion of the fund's value or the nature of the asset indicates that the valuation is likely to be complex.

    See also:

    SMSF financial reports

    For 2012–13 income year and any later years of income, SMSFs are required to use market value reporting for their financial accounts and statements.

    When to undertake an external valuation for financial report purposes

    We expect you to consider the value of the assets in your fund each year. This does not mean that you need to do an external valuation for all assets each year. For example, assets such as real property may not need an annual valuation unless a significant event occurred that may change its value since it was last valued.

    On the other hand, assets such as cash, widely held managed funds and listed securities can be valued easily each year and should be valued at the end of each financial year.

    Generally, the valuation can be undertaken by anyone as long as it is based on objective and supportable data.

    Consider the use of a qualified independent valuer if either:

    • an asset represents a significant proportion of the fund's value
    • the nature of the asset indicates that the valuation is likely to be complex.

    Specific requirements for asset classes

    Some assets must be valued in a particular way.

    Listed securities

    For the end of financial year reporting of listed securities, for example, listed shares and managed units, use the closing price on each listed security's approved stock exchange or licensed market at 30 June as the market value of the security.

    See also:

    Real property

    For preparing SMSF financial reports, an external valuation of real property is not required each year. A recent valuation however would be prudent if you expect that the valuation is now materially inaccurate or an event occurred that may have affected the value of the property since it was last valued. This may be due to a change in market conditions or a natural disaster.

    When valuing real property, relevant factors and considerations may include:

    • the value of similar properties
    • the amount that was paid for the property in an arm's length market
    • independent appraisals
    • whether the property has undergone improvements since it was last valued
    • for commercial properties, net income yields.

    Business real property acquired from a related party of the SMSF must be made at market value. Disposals of real property to a related party of the SMSF must be conducted at arm's length.

    When valuing real property assets for SMSF financial reports, the valuation may be undertaken by anyone as long as it is based on objective and supportable data. A valuation undertaken by a property valuation service provider, including online services or real estate agent would be acceptable.

    See also:

    Related party transactions

    The following related-party transactions require assets to be valued in a specific way.

    Acquisitions of assets from related parties

    SMSF trustees and investment managers are prohibited from intentionally acquiring assets from related parties.

    However, there are exceptions, such as listed securities, business real property and certain in-house assets. Permitted assets must be acquired at market value.

    You should determine the market value of the acquired asset based on objective and supportable data.

    Consider using a qualified independent valuer if either the:

    • value of the asset represents a significant proportion of the fund's value
    • nature of the asset indicates that the valuation is likely to be complex or difficult.

    An approved SMSF auditor can seek an independent valuation of the fund's investments, as part of their audit and assurance engagement.

    Investments made and maintained on an arm's length basis

    Investments by SMSFs must be made and maintained on an arm's length basis.

    The purchase and sale price of assets should always reflect a true market rate of return.

    The value must be based on objective and supportable data.

    Consider using a qualified independent valuer if either the:

    • value of the asset represents a significant proportion of the fund's value
    • nature of the asset indicates that the valuation is likely to be complex.

    An approved SMSF auditor can seek an independent valuation of the fund's investments, as part of their audit and assurance engagement.

    Collectables and personal use assets

    If an SMSF is disposing of a collectable or personal use asset to a related party of the fund, and the asset was acquired on or after 1 July 2011, the transaction must be conducted at market price as determined by a qualified independent valuer.

    The assets should be valued as at the date of the transaction.

    If the collectable or personal use asset was acquired before 1 July 2011 and disposed of after 30 June 2016, the disposal must be at market price as determined by a qualified independent valuer.

    If the collectable or personal use asset was acquired before 1 July 2011 it can be disposed of to a related party of the fund without the need for a valuation by a qualified independent valuer provided the disposal occurs before 1 July 2016. However, the transfer should be made at an arm's length price that is based on objective and supportable data. This transitional period exists to provide you with time to comply with the regulations.

    Table 3: Valuation requirement depends on date asset was acquired and disposed of

    Date

    Disposal occurs before1 July 2016

    Disposal occurs on or after 1 July 2016

    Acquired before1 July 2011

    No need for valuation by a qualified independent valuer

    Qualified independent valuer determines market price

    Acquired on or after 1 July 2011

    Qualified independent valuer determines market price

    Qualified independent valuer determines market price

    In-house assets

    Where the SMSF holds an in-house asset the value of all its assets need to be determined at the end of a year of income. The valuation enables you to test whether the market value of in-house assets exceeds 5% of its total assets at the end of a year of income.

    The valuation can be undertaken by anyone as long as it is based on objective and supportable data. Where the nature of the asset indicates that the valuation is likely to be complex, the use of an external valuer should also be considered.

    We expect you to know the value of the assets in your fund. This does not mean that an external valuation needs to be performed for all assets each year. However, an external valuation of an asset such as real property may be prudent if you expect the valuation is now materially inaccurate or a significant event has occurred since it was last valued.

    Other assets, including cash, managed funds and listed securities are easily valued and should therefore be valued at the end of each financial year.

    The valuation of units in widely held trusts and managed funds should be based on the published exit price from the fund or trust manager.

    See also:

    Determining the value of the assets that support a pension

    The market value of the assets that support a pension or super income stream needs to be determined on either:

    • the commencement day of a pension
    • for on-going pensions, 1 July of the financial year in which the pension is paid.

    Similar to valuing assets for the purpose of financial reports, the valuation can be undertaken by anyone as long as it is based on objective and supportable data. Where the nature of the asset indicates that the valuation is likely to be complex, you may also consider the use of a qualified independent valuer.

    It is expected that you would know the value of the assets in your fund. This does not mean that an external valuation needs to be performed for all assets each year. However, an external valuation of an asset such as real property may be prudent if you expect the valuation is now materially inaccurate or a significant event has occurred since it was last valued.

    Other assets including cash, managed funds and listed securities are easily valued and should therefore be valued at the end of each financial year.

    It is accepted that a reasonable estimate of the value of the account balance can be used when a pension is commenced part way through the year.

    It is also accepted that a reasonable estimate value of the account balance can be used when calculating the value of a pension for transfer balance cap purposes and;

    • the pension commenced on 1 July
    • you need to report this event to us by 28 October
    • a full valuation of the assets supporting the pension is not possible by this date (for example, they include private company shares).

    Note: Although a reasonable estimate of the value of a pension can be used in the circumstances described above, you cannot rely on this reasonable estimate when preparing the SMSF's financial accounts and calculating the SMSF's entitlement to exempt current pension income (ECPI).

    See also:

    Unlisted securities and unit trusts

    When valuing an unlisted security, for example, a share in a private company, or a unit in an unlisted trust, we expect you to take into account a number of factors that may affect its value, including both the:

    • value of the assets in the entity
    • consideration paid on acquisition of the unlisted securities or units.

    It may be wise to use an external valuer if the nature of the asset indicates that the valuation is likely to be complex.

    See also:

    Investments without a ready market

    When making investment decisions on behalf of the fund, you have certain duties and responsibilities which are designed to protect and increase a member's benefits for retirement. It is expected that you would be aware of the value of an asset at the time of acquisition, its potential for capital growth and its capacity to produce income.

    It is unlikely that an asset with no known value or potential for capital or income growth would be considered a prudent investment to support members' retirement goals.

    It is acknowledged that there may be instances where investments fail and there is neither a current value nor a ready market. This may mean the asset is held and recorded in the financial reports and statements at a nil or nominal amount.

    A significant event affects the value of an asset

    Where there has been a significant event that affects the value of an asset, and you are preparing SMSF financial accounts and statements, you should either:

    • undertake a new valuation of that asset
    • use a valuation undertaken after the significant event occurred.

    Use this valuation when determining the value of the assets that support a pension or when valuing assets for the in-house asset test.

    These significant events may include:

    • a natural disaster
    • macro-economic events
    • market volatility
    • changes to the character of the asset.

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      Last modified: 21 May 2019QC 26343