SMSF members who value assets at zero without strong evidence will find that assessment rejected by the ATO, particularly in the context of the proposed Division 296 tax, according to a specialist lawyer.
DBA Lawyers special counsel Bryce Figot recently addressed the situation of an SMSF that held the majority of its assets in unlisted shares that had a pattern of being recorded as negative net assets.
“In this situation, the trustees have agreed to value the shares at zero. Is this sufficient? To be blunt – no. I would lodge an auditor contravention report,” Figot said during a recent webinar hosted by The Auditors Institute.
He added while there were other valuation factors to be considered, questions should be asked about the ongoing retention of the assets.
“First of all – negative net assets. Why is the super fund investing in it?” he said.
“Presumably the answer is because they think there’s an appreciable chance of getting a return on investment and that’s probably what you should be valuing.
“This is going to become more of a big deal if the Division 296 tax is introduced.
“If we had someone who invests millions of dollars into weird and wonderful private equity and then says the trustees have agreed to value that at zero and are not going to pay this new tax, that’s highly problematic.”
He pointed out negative net assets were unlikely to be accepted as a valuation criteria by the ATO.
“Just because the fund shows negative net assets and the trustees agreed to value it at zero, that’s not what the will ATO say,” he said.
“They want you to be looking at the value of the assets of the entity, the consideration paid and so on and I would be surprised if that gets you to zero.”
