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Asset valuation breaches spike

Asset valuation breaches SMSF

Compliance breaches regarding the valuation of SMSF assets have risen significantly over the past few years, the ATO has revealed.

The ATO has revealed the number of Superannuation Industry (Supervision) Regulation breaches regarding an asset valuation within an SMSF has risen significantly over the past few years, but said it will not treat such offences as those requiring severe punishment.

“We are seeing a big spike in regulation 8.02B breaches being [reported] on ACRs (auditor contravention reports). For instance, 663 reg 8.02B breaches for 2017 we received in ACRs [and] last year [this grew to] 1705,” ATO risk and strategy director Kellie Grant said during a 2020 Self-managed Independent Superannuation Funds Association SMSF Virtual Forum presentation today.

“That’s almost tripled, so we are seeing a lot more of [those breaches].”

Regulation 8.02B imposes an obligation on SMSF trustees to have assets held by the fund recorded at market value with the additional duty of being able to verify the valuation method. Further, SMSF auditors have the responsibility of lodging an ACR in situations where trustees cannot provide them with satisfactory evidence the asset or assets concerned have been properly valued.

Grant said while the ATO considers these breaches to be of a very serious nature in certain circumstances, they are not perceived as serious enough to warrant bringing down severe penalties upon the trustees involved.

“If it’s a major asset of the fund, I think it is seen as a risk that warrants some sort of follow-up I guess. It’s not seen as serious as say illegal early access [of assets], especially where that remains unrectified,” she noted.

“So with a lot of those valuation-type breaches [trustees] might just get a letter warning them to ensure they get that evidence to their auditor [before] the next audit otherwise a repeated breach could lead to the application of penalties.”

To this end, she said the regulator had exercised a degree of leniency for valuation breaches for 2020 due to the impact of coronavirus.

“If we can see for instance the trustee had difficulty because of COVID, for instance, in getting those sort of valuations, we’re writing to them and saying next year just make sure you get that valuation evidence that your auditor needs.”

Earlier this month, the ATO revealed the 2020 financial year had witnessed an increase in the number of high-risk compliance breaches reported that remained unrectified.

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