Valuations a clue for apt assets

SMSF asset valuation

The degree of difficulty associated with obtaining a proper valuation for an investment can indicate whether the asset is suitable for an SMSF.

A technical specialist has suggested SMSF trustees and their advisers can potentially gauge how suitable an asset is for a super fund portfolio on the basis of how difficult it is to obtain a proper valuation for it.

“[If you find] it’s too hard to get a valuation on specific types of investments, then the question actually has to be asked is that investment appropriate for a self-managed superannuation fund,” SuperGuardian education manager Tim Miller told practitioners during a recent technical webinar.

Miller added the valuation alone would not be a determining factor and the sole purpose test would also play a role in deciding whether to hold the asset within the SMSF.

“From a sole purpose test point of view, if [the asset is] too hard to value, [does it mean] it is going to be too hard to liquidate?” he said.

“[It must be determined] what are the issues associated with that investment that are going to make it problematic in the future for the fund, which [should] ultimately be a consideration when the fund enters into that investment in the first place.”

According to Miller, the trustees must ask themselves why they acquired the asset in question for the SMSF and must determine if they did it for the sole purpose of providing retirement benefits to the members of the fund or was there some other purpose to making the investment, such as cash-flow considerations.

He used an investment he made recently in a private craft beer company, not via his SMSF, to illustrate the point. Part of the reasoning behind the investment was to receive discounted beverages, but the acquisition of the organisation’s shares came with a warning as to the characteristics of the shares, which he said should have been a danger sign for any SMSF trustee.

“[It was communicated] this is an investment in a private company as such [and so] the shares are not listed anywhere. [This means] there won’t be ongoing or regular valuations and it won’t be easy to sell the investment,” he noted.

“There would obviously be a way [to sell the shares], but the further you look into the transaction, the more difficult it would be to have in a self-managed superannuation fund and the more difficult it would be to obtain a valuation once we move outside the initial share offer process.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital