Compliance, Documentation

Assets without a market raise questions

SMSF assets market

The ATO has indicated assets without a ready market may not be suitable investments for SMSFs, particularly if they cannot produce growth or income.

An SMSF holding assets that do not have a ready market may be questioned by the fund auditor and the ATO as to their presence within the fund, unless they are the result of a failed investment, according to a technical expert.

Smarter SMSF chief executive Aaron Dunn said a recent update to the ATO’s market valuation guidance raised questions about the place of assets that were difficult to value.

“We have seen an interesting comment from the ATO where they have recently updated market valuation guidance for SMSFs focusing on investments without a ready market,” Dunn said during a recent webinar.

He pointed to the updated version of the guidance in QC26343, which stated: “When making investment decisions on behalf of the fund, you have certain duties and responsibilities which are designed to protect and increase a member’s benefits for retirement.

“It is expected that you would be aware of the value of an asset at the time of acquisition, its potential for capital growth and its capacity to produce income.

“It is unlikely that an asset with no known value or potential for capital or income growth would be considered a prudent investment to support members’ retirement goals.”

Dunn said: “This does raise some concerns if there is not a ready market. Would it be an appropriate investment inside the fund and does it potentially become a sole purpose issue?

“If you don’t have a valid argument and case to answer around why there isn’t a determined market valuation for a particular asset, auditors may rightly question it on the basis of what the ATO have indicated here as to whether this is a prudent investment to support the retirement goals.”

He said the ATO recognised there may be instances where an investment failed, leading to there being no current value or ready market value.

“In that instance, the asset could still be held and recorded in the financial reports and statements at a nil or nominal amount,” he said.

“Be aware of the differences between those two instances as this is a real and continued focus by the ATO on making sure funds are complying with the requirements set out in SIS (Superannuation Industry (Supervision)) regulation 8.02b, [which covers valuing assets at market value].”

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