A specialist educator has alerted practitioners to the regulator’s warning as to how inappropriate it may be for an SMSF to hold an asset that has no apparent market and as such cannot have a valuation performed on it easily.
“The ATO, its valuation guidelines, made some commentary in regard to investments without a ready market and one of the comments it made was ‘it’s 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’,” Smarter SMSF technical and education manager Tim Miller told advisers and accountants during a SuperGuardian webinar held today.
Miller pointed out the regulator’s guidelines illustrate how trustee valuation obligations intersect with the sole purpose test and should prompt an SMSF member to question whether a particular asset should actually be held by the fund.
He suggested assets acquired due to sentiment could create such situations and cause significant issues at later stages if they do not have a ready market associated with them.
“The real consideration has got to be [for individuals to ponder] ‘yes, but is this going to provide for my retirement or do I just love the investment class [even though] it doesn’t necessarily have the value attached to it that’s going to meet my sole purpose requirements in providing retirement benefits for me’,” he said.
“[And] it’s not just the valuation on a year-by-year basis, but also [the trustee’s] capacity to then subsequently dispose of that investment at that point in time where they’re wanting to start to draw income down from that fund.”
According to Miller, the emotion involved could create additional problems as well.
“[Another consideration will be] if [the trustee] loves the asset so much, is the disposal then going to be to a related party, then can they get a qualified independent valuer to perform the appropriate valuation,” he explained.
“But that is for each individual trustee to determine on their own.”
