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Contributions, Investments, Pensions

Poor valuations have wide impact

SMSF asset valuations

Inaccurate asset valuations can skew contributions from an SMSF and raise questions around the suitability of its investment strategy.

Inaccurate asset valuations can impact contributions into an SMSF and raise questions as to whether the fund’s investment strategy is suitable, a senior technical manager has warned.

SuperConcepts SMSF technical and strategic solutions executive manager Philip La Greca said recording an accurate market value of an asset was important for the preparation of end-of-year financial accounts, but incorrect values could have an impact across the whole fund.

“Up-to-date values are used to calculate member balances because that is the balance sheet of the fund – assets on one side, member balances on the other – and if there is a change in the value of the assets, that has to be reflected in the member balances,” La Greca said during a recent webinar.

“A member balance is also used for a range of things, such as pension levels, but if there is an update to member balances at 30 June, that is going to change the pension levels for next year.

“Valuations also flow through to the total super balance, which has direct impact on contributions, particularly bring-forward and carry-forward contributions, so an update to a valuation might change the level of non-concessional bring-forward contributions and carry-forward concessional contributions that can be made.”

He said SMSF trustees and members should give consideration to the valuations of an asset before purchasing it, particularly if the value was hard to ascertain due to the nature of the asset.

“Assets such as some forms of property, unlisted investments and loans can be hard to value and we need to recognise this before a purchase because if a member is going to buy any of these assets, how will it interact with their investment strategy?

“The strategy is about what will be the asset allocation and the long-term rate of return the fund is trying to achieve and if there is trouble in valuing the asset, how can the member determine whether it sits appropriately within the investment strategy?

“So before I buy an asset, I have to think about the valuation as it is not just about asset allocation, it is also about return, liquidity, cash flow and diversification.”

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