The Valuation of Assets

Valuing superannuation fund assets at current market value has always been required for funds other than SMSFs. SMSF trustees however were historically only required to revalue their fund’s assets to market when a benefit needed to be paid or when the fund commenced a pension. If the fund held an in-house asset, its assets needed to be marked to market in order to ascertain if a breach of the rules had occurred.

The Federal Government, in its 2012 Budget, announced that all superannuation funds, including SMSFs, must adopt current market valuation methodology in accounting for and disclosing the valuation of all assets effective 1 July 2012 (Refer SISR 8.02B). This all changed however due to Regulation 8.02B which has applied to SMSF’s for the 2013 financial year onwards. This regulation states that an asset must be valued at its market value when preparing the Statement of Financial Position.

What is Market Value?

Sub-section 10(1) of the Superannuation Industry (Supervision) Act 1993 (SISA), states that market value is “the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller” if the following assumptions were made:

1. That the buyer and the seller dealt with each other at arm’s length in relation to the sale;
2. That the sale occurred after proper marketing of the asset;
3. That the buyer and the seller acted knowledgeably and prudentially in relation to the sale

Net Market Value is defined in AAS25 as “the amount which could be expected to be received from the disposal of an asset in an orderly market after deducting costs expected to be incurred in realising the proceeds of such as disposal”.

The difference between the actual cost price, and the estimated net selling price will be the realised capital gain or loss (if the asset was sold) or the unrealised gain or loss, if it was not actually sold.

Guidelines for valuing assets

The ATO says that it does not intend for the obtaining of a market valuation to be onerous or expensive for the trustees. Depending on the situation, a market valuation may be obtained by a qualified valuer, or a person without formal qualifications, which may include the opinion of the trustees of the fund (a trustee valuation). Whoever performs the valuation must base their determination on reasonably objective and supportable data.

The determination of the appropriate valuation method will depend on the asset to be valued, its complexity and the proportion of its likely value to the total value of all the fund’s assets. Where an asset represents significant proportion of the fund’s value or where the valuation is likely to be complex or difficult, the use of a qualified valuer should be considered.

Regardless of who conducts the valuation, it must be subject to a reasonable process that takes into account all relevant factors, be conducted in good faith, result from a reasoned and rational process and be capable of being explained and justified to a third party, including the fund’s Auditor and the ATO.

Importantly, trustee valuations should be conducted as though they were at arm’s length and should be supported in writing with an explanation as to the criteria used in the determination. Trustee valuations are likely to be challenged more than those prepared by an independent or qualified valuer.

Tips

• Make sure detailed documentation supports the asset’s valuation and keep this supporting documentation on file
• Listed equities
• Use the current ASX valuation
• Unlisted equities or units in unlisted trusts
• These valuations are more difficult; up to date financial statements must be obtained coinciding with the fund’s balance date, in order to arrive at a valuation base. The engagement of a qualified accountant should be considered
• Art, antiques and exotics
• Even though the ATO has clamped down on SMSFs acquiring and holding artworks and exotics such as vintage cars, wine and antiques, those assets currently held still need to be marked to market at 30 June each year by an appropriately qualified valuer
• Real Property

We recommend that a qualified property valuer should be engaged every three years or so. Each other year a kerb-side valuation by a local estate agent who knows the area should suffice. A trustee valuation may be considered after their taking into account the value of similar properties in the area, the cost of the property, council valuations for rate purposes including CIV values and independent appraisals.

The ATO has prepared an excellent publication “Valuation Guidelines for Self-Managed Superannuation Funds” issued in August 2012.