The ATO has restated its position that the assets of an SMSF should be valued every year and will be focusing on 16,500 funds that have reported unchanged values for certain classes of assets for a least three years.
In an update on its website, the regulator stated it was using data analysis to identify risks including funds that have not changed the amount they are reporting as the value of SMSF assets in their annual return.
“We are concerned these funds may not be meeting their legal requirement to value and report their assets at ‘market value’ every year,” it stated.
“Of specific concern is a higher-risk category of approximately 16,500 funds which have reported certain classes of assets at the same value for at least three income years. This includes residential and commercial property, unlisted companies and unlisted trust investments.”
It also called out SMSF auditors who were engaged with this group of funds, noting they too would be subject to examination in regards to asset valuation reporting.
“There were more than 1000 SMSF auditors associated with this high-risk population and our data tells us no auditor contravention reports were lodged for potential breaches of the market valuation rules for the assets,” it said.
“To address this, we have commenced sending targeted messages to trustees and auditors about this obligation and we will be monitoring the approach taken by the funds in their next annual return.”
SMSF Alliance principal David Busoli said while there may be good reasons why an asset value has not changed, “the ATO’s obvious concern is that these SMSFs may not be meeting their legal requirement to value and report their assets at ‘market value’ every year”.
“Relevantly, some trustees and auditors may not feel that the annual valuation requirement is of any real concern unless it affects pension commencements, total super balance limits, related-party transactions and other matters affected by valuations, however, the standards require that the valuation requirements must be met or administrative penalties can apply,” Busoli said.
The ATO reminded SMSF trustees they had a responsibility to ensure assets were assessed at market value and before the lodgement of the SMSF annual return, the fund’s auditor was required to check the assets have been valued correctly and assess if the basis for the valuation was appropriate.
Trustees were also required to provide to the auditor objective and supportable evidence to back the valuation of fund assets and where a valuation did not meet the ATO requirements, an SMSF and its members could pay additional tax and be liable for administrative penalties.
