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.
Checklist for obtaining valuations
Some assets must be valued in a particular way – these are summarised in Table 2.
|
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.
For more information visit Event-based reporting for SMSFs.
Valuing fund assets for financial statements and accounts
SMSF trustees are required to value all fund assets at market value when preparing their fund's financial accounts and statements.
When valuing assets for the purpose of preparing the fund's financial accounts and statements, the valuation may be undertaken by anyone as long as it is based on objective and supportable data.
Evidence should be maintained of how the valuation has been determined so that it can be provided to the fund’s SMSF auditor when the fund’s annual audit is undertaken.
You are not required to obtain a valuation by a qualified independent valuer of the fund's assets for the purposes of preparing the fund's accounts and statements.
However, you should consider using a qualified independent valuer if:
- the value of a fund asset represents a significant proportion of the fund's value
- the nature of the asset indicates that the valuation is likely to be complex or difficult.
If you choose to obtain a valuation by a qualified independent valuer for a fund asset, you do not need to have a valuation completed by the qualified independent valuer each year.
However, you must still consider whether a previous valuation which has been provided by a qualified independent valuer can be used to support your valuation of the asset each year.
It is up to you to assess the value reported for all assets when preparing financial statements, and if you are relying on a valuation from a qualified independent valuer, you should assess whether it is still appropriate, and document how you came to this conclusion.
If a valuation by a qualified independent valuer has become materially inaccurate, or the value of an asset has changed significantly since it was last valued, you should no longer rely on it. You should obtain a new valuation or use other forms of evidence to support your determination of the asset's market value.
Specific requirements for asset classes
Some assets must or should 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.
For more information see Market valuation for tax purposes.
Real property
When valuing real property, you may wish to consider using a qualified independent valuer, especially where the value of the property represents a significant proportion of the fund's value.
When valuing real property, relevant factors and considerations may include:
- the value of similar properties and recent comparable sales results
- the amount that was paid for the property in an arm's length market – if the purchase was recent and no events have materially affected its value since the purchase
- an independent appraisal from a real estate agent (kerbside)
- whether the property has undergone improvements since it was last valued
- a rates notice (if consistent with other valuation evidence)
- for commercial properties, net income yields (not sufficient evidence on their own and only appropriate where tenants are unrelated).
Unless the property has been recently purchased by the fund, you should consider a variety of sources to substantiate the market value of real property. Generally, it is not sufficient for valuations to be based on only one item of evidence in the above list.
When valuing real property assets for the purpose of preparing the fund's financial accounts and statements, 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 a real estate agent, would be acceptable. However, the valuation should stipulate the supportable data if it is the sole source of evidence being relied upon to substantiate the valuation. For example, in the case of a real estate agent appraisal or online report, the valuation should list the comparable sales it relied on.
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 and disposed of before 1 July 2016 to a related party of the fund, a valuation by a qualified independent valuer was not required. However, the transfer should have been made at an arm's length price based on objective and supportable data. This transitional period existed to provide you with time to comply with the regulations.
|
Date |
Disposal occurs before 1 July 2016 |
Disposal occurs on or after 1 July 2016 |
|---|---|---|
|
Acquired before 1 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.
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's expected that you would know the value of the assets in your fund. This doesn't 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's 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's 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 when the member commences a pension on 1 July, but a full valuation of the assets supporting the pension is not possible by 28 October. For example, they may include private company shares or commence a pension part way through a year and the SMSF:
- has an obligation to report events no later than 28 days after the end of the quarter
- does not have an obligation to report events until they lodge the self-managed super fund annual return (SAR) for the year but choose to report the event to us no later than 28 days after the end of the quarter.
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).
Unlisted securities and unit trusts
When valuing an unlisted security, for example, a share in a private company, or a unit in an unlisted unit 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.
Evidence to support your valuation of an unlisted security may include:
- an independent expert valuation of assets held in the company or unit trust
- a property valuation where property is the only asset of the company or unit trust
- the date and price of the most recent sale and purchase of a share or unit between unrelated parties.
If an independent expert valuation is not available, provide:
- evidence of how the market valuation was substantiated by the directors or trustees, including objective and supportable data on which they relied
- the valuation method they used, and any assumptions made.
You should consider using a qualified independent valuer if:
- the nature of the asset indicates the valuation is likely to be complex, or
- the value of the asset (or assets) represents a significant proportion of the fund's value.
Company or unit trust financial statements that are signed and audited are unlikely to be sufficient evidence on their own, where the purpose is to establish whether the fund's investment is reported at market value if the assets have been valued at cost.
There is more information available about:
- Valuing unlisted shares
- Market valuation for tax purposes
- Verifying the market value of fund assets
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's 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's 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:
- obtain a new valuation of that asset
- use a valuation obtained after the significant event occurred, or
- obtain alternative evidence to support the value of the fund asset.
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
- global pandemic (for example, COVID-19)
- macro-economic events
- market volatility
- changes to the character of the asset.