Auditing, Property

Valuation guidelines misunderstood

SMSF property comparable valuations auditor

Certain ATO valuation guidelines for SMSF properties are not properly understood by trustees, subsequently resulting in significant angst.

The ATO recommendation to provide information regarding comparable assets when valuing an SMSF property is causing considerable angst for trustees as they are displaying a lack of understanding of the entire valuation rules, a specialist practitioner has said.

To illustrate the reality of the situation, Elite Super managing director Katrina Fletcher shared a set of circumstances she recently experienced with an SMSF trustee.

“I had a lady who [held a property in her SMSF] that was unique. It was a medical practice in a coastal town and there were no other medical practices in [that particular] town, so there was nothing similar. She went to the real estate agent and said ‘this is what I need – comparable [values for the asset]’,” Fletcher told delegates at the Institute of Public Accountants National Congress 2023 held in Sydney last week.

“He wrote a letter [back] saying: ‘I think it’s worth this, but there are no comparable [properties].’

“I received that for the audit, [but I had to tell the accountant] the fact there are no comparable [properties] I do need something else [for the asset to be properly valued].”

The accountant duly communicated this fact to the client and the trustee had to subsequently seek a professional valuation of the property that cost over $2000.

“She went back to the accountant’s office two or three months later saying: ‘I can’t afford to spend $2000 a year [to get this asset valued],’” she said.

“That’s the difficulty we face explaining it to our trustee clients because they don’t understand [exactly how these rules work].”

To this end, Fletcher pointed out trustees do have other acceptable techniques to use use apart from having a professional valuation performed should a price for a comparable property not be available in their set of circumstances.

These include recent arm’s-length property purchases, rates notices in certain states and situations, and an extrapolated value based upon net income yields.

Fletcher suggested a combination of two of these data points would suffice for the annual SMSF audit to be performed without issue.

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