Valuation process most important

The process behind how assets held in an SMSF have been valued is the most important element and not who actually valued the assets, a senior executive with a large chartered accounting firm has said.

Speaking at the Chartered Accountants Australia and New Zealand National SMSF Conference 2017 held in Sydney recently, Ernst & Young executive director Matina Moffitt said: “I think the message to get out here around the ATO is that it’s all about the process and not necessarily about who actually is doing the valuation.”

Specifically, the ATO is looking for SMSF trustees to use a fair and reasonable process in valuing the assets of the fund with the regulator having provided some guidelines as to methodology behind this valuation approach, she said.

“What they expect the fair and reasonable process to follow is to take account of all the relevant factors considering the likely effect on the value of assets, if the value has been taken out in good faith, is it a rational and reasonable process, and is it capable of being explained to a third party,” Moffitt explained.

She added that the regulator considered consistency important in relation to other valuation protocols when assessing the legitimacy of how an SMSF has been valued.

“There needs to be a consistency across the valuation that you do for your assets in relation to the guide around market valuations for tax purposes, around capital gains tax, and always I think some of the words the tax office uses is making sure any valuation you undertake is objective and supportable data is provided,” Moffitt said.

While establishing a regular pattern of how SMSF assets have been valued in the past is important she stressed the current situation brought about by the super reforms means the timing of valuations, such as those involving property, may have to be reconsidered.

“From a property valuation perspective I think in general we find there is usually a three-year cycle that most our clients go through but I have encouraged a lot of my clients who have got properties to do a valuation at 30 June 2017,” Moffitt said.

“With the requirements that are coming in it’s probably a good time, especially if they’ve got a valuation that’s a couple of years old. It may be a good time to refresh it rather than waiting for that three-year cycle and enables them to get a proper asset value so they can determine what their transfer balance is and what their total member account balance is as well.”

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