Guide to valuing SMSF assets

About this guide

This guide is designed to help self-managed super fund (SMSF) trustees when valuing assets for superannuation purposes, including:

• valuing all fund assets at market value when preparing the fund's accounts and statements
• determining the market value of assets supporting members' super income streams (pensions) and accumulation accounts to calculate the members' total super balances
• how some classes of assets must be valued and reported in a specific way.

It is expected that the investment decisions you make are designed to protect and increase member benefits for retirement. Therefore, you should know the value of the assets in your fund to ensure this occurs.

You should read this guide in conjunction with:

• Market valuation for tax purposes
• TR 2010/1 Income tax: superannuation contributions – this ruling includes the Commissioner's view on when a super provider acquires beneficial or legal ownership of an asset.

This guide is not a comprehensive handbook about valuations, nor does it remove your responsibility to manage investments prudently and in the best financial interests of all members.

Seek advice and assistance from a superannuation professional if you are unsure of your obligations and responsibilities in relation to ensuring you have the correct method of valuing the assets in your fund.

Why you must value fund assets

Valuation of assets is required to confirm your SMSF has complied with relevant super laws when:

• valuing the fund assets for the preparation of financial accounts and statements
• acquiring assets between SMSFs and related parties
• making and maintaining investments on an arm's-length basis
• disposing of certain collectables and personal use assets to a related party of the fund
• determining the market value of an SMSF's in-house assets as a percentage of all assets in the fund to ensure they do not exceed 5%
• determining the market value of assets
  • supporting the commencement of a new retirement phase superannuation income stream (pension) which will count towards the transfer balance cap
  • supporting members' retirement phase and accumulation accounts for the purposes of calculating the members' total super balances as at 30 June each year
  • for determining the annual pension payment requirements on 1 July each year
• managing your fund’s investments in the best financial interests of fund members such as disposing of or selling other assets not listed above.

How assets must be valued

The market value is defined in the superannuation legislation as:

The amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if all the following assumptions were made – that the:

• buyer and the seller dealt with each other at arm's length in relation to the sale
• sale occurred after proper marketing of the asset by the buyer and
• the seller acted knowledgeably and prudentially in relation to the sale.

You must be able to demonstrate that the valuation is from using a 'fair and reasonable' process. Generally, a valuation is considered fair and reasonable when it meets all the following:

• It is based on objective and supportable data.
• It considers 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 logical process.
• It is capable of explanation to a third party.

Depending on the situation, a valuation may be undertaken by a:

• registered valuer
• professional valuation service provider
• member of a recognised professional valuation body
• person without formal valuation qualifications but who has specific experience or knowledge in a particular area.

In certain instances, the law requires valuations be undertaken by a qualified, independent valuer.

A valuer will be qualified either through holding formal valuation qualifications or by being considered to have specific knowledge, experience and judgment by their particular professional community. This may be demonstrated by being a current member of a relevant professional body or trade association.

The valuer must also be independent. This means that the valuer shouldn't be a member of the fund or a related party of the fund. For example, they shouldn't be a relative. They should be:

• impartial
• unbiased
• not influenced or appear to be influenced by others.

We also recommend the use of a qualified independent valuer when the:

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

Valuing fund assets for financial accounts and statements

SMSF trustees are required to value all fund assets at market value when preparing their fund's financial accounts and statements.

The market value of assets that support member's retirement phase and accumulation accounts on 30 June each financial year is important. This is because it allows the calculation of individual member's total super balances, which are used for a number of purposes.

Keep evidence of how the valuation is determined. This is so it can be provided to the fund’s SMSF auditor when the fund’s annual audit is undertaken.

For the purposes of preparing the fund's accounts and statements, you are not required to obtain a valuation by a qualified independent valuer of the fund's assets.

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
• nature of the asset indicates that the valuation is likely to be complex or difficult.

Obtaining independent valuations

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 if a previous valuation provided by a qualified independent valuer can be used to support your valuation of the asset each year.

When preparing financial statements, you need to assess the value reported for all assets.

If you are relying on a valuation from a qualified independent valuer, you should:

• assess if it is still appropriate
• 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.

When to use a qualified independent valuer

Super laws only require a valuation by a qualified independent valuer for all disposals to a related party since 1 July 2016.

However, you should also 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.

You should no longer rely on an independent valuation if it:

• has become materially inaccurate, or
• the asset's value has changed significantly since it was last valued.

In these situations, we recommend you obtain a new valuation or use other forms of evidence to support your determination of the asset's market value.

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

Trustee and SMSF auditor roles for annual asset valuations

It's the trustee's responsibility to:

• value all fund assets at market value when preparing the fund's accounts and statements
• ensure the valuation is based on objective and supportable data.

The role of your SMSF auditor is not to value fund assets, or to determine their market value.

Your SMSF auditor may request that you provide all relevant documents that demonstrate how you arrived at the valuation.

Your approved SMSF auditor is then responsible for checking the valuation of fund assets as part of the annual SMSF audit. This includes applying their professional judgment in:

• checking that assets have been valued correctly
• assessing and documenting if the basis for the valuation is appropriate given the type of asset.

Some assets must be valued in a particular way to meet regulatory requirements.

Additional valuation requirements for specific asset classes

Listed securities

Listed securities includes listed shares and managed units. For their market value for end of financial year reporting, use the closing price on their approved stock exchange or licensed market on 30 June.

Real property

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 appraisal from an independent real estate agent
• whether the property has undergone improvements since it was last valued
• net income yields for commercial properties (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.

A valuation undertaken by a property valuation service provider, including online services or a real estate agent, are acceptable. If this valuation is the sole source of evidence being relied upon to substantiate the real property valuation, the valuation should specify the supportable data. 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

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
• certain in-house assets.

Permitted assets must be acquired at market value and, if applicable, are subject to collectables and personal use asset rules.

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

Valuation requirements depend on the date the asset was acquired and disposed of.

Assets should be valued at the date of the transaction.

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.

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.

However, if the asset was purchased before 1 July 2011 and transferred before 1 July 2016 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.

In-house assets

If the SMSF holds an in-house asset, the value of all assets needs to be determined at the end of a year of income. The valuation enables you to see if the market value of in-house assets exceeds 5% of the SMSF's total assets at the end of a year of income.

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.

Valuing assets that support a pension

The value of assets that support a member's super income stream needs to be determined on 30 June each financial year. This enables calculation of the member's total super balance, which is used for purposes including:

• carry-forward concessional contributions
• non-concessional contributions and bring forward of the non concessional contributions cap.

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

• the commencement day of a pension, for
  • calculating amounts that count towards the transfer balance cap
  • determining annual pension payment amount
• for on-going pensions, 1 July of the financial year in which the pension is paid
  • for annual pension payment amounts.

Like 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. If 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 started part way through the year
• calculating the value of a pension for transfer balance cap purposes when the member starts a pension on 1 July, but a full valuation of the assets supporting the pension is not possible by 28 October.

For example, the assets may include private company shares or the member may start 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 the self-managed super fund annual return is lodged for the year but chooses to report the event to us no later than 28 days after the end of the quarter.

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, like a share in a private company or a unit in an unlisted unit trust, we expect you to consider 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:

• asset indicates the valuation is likely to be complex, or
• 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 where the assets are valued at cost are unlikely to be sufficient evidence on their own.

Investments without a ready market

When making investment decisions on behalf of the fund, you have obligations 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
• 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 as zero or a nominal amount.

When significant events affect the value of an asset

Significant events can include:

• a natural disaster
• a global pandemic
• macroeconomic events
• market volatility
• changes to the character of the asset.

When 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.

Our approach to valuations

We'll generally accept your valuation if:

• it doesn't conflict with this guide or Market valuation for tax purposes
• there's no evidence a different value was used for the corresponding capital gains tax event
• it was based on objective and supportable data.

If we conclude the most appropriate valuation method has not been used for any of the assets:

• your valuation will not be accepted, and
• the most appropriate valuation method will be applied to determine the value.

We may review a valuation during our compliance processes. As part of this review, you may be asked to provide evidence and documentation of the valuation method used to allow us to decide whether to accept the valuation or not.