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.