Unlisted valuation proof more critical

SMSF trustees with unlisted assets are likely to receive greater scrutiny from the ATO this financial year and should work with auditors to ensure the associated documentation is complete, particularly where valuation information is limited, a senior sector practitioner has stated.

Reliance Auditing Services managing director Naz Randeria said under the new Division 296 tax, valuations will be critical, especially if they prove a fund is under the $3 million threshold, placing the onus on trustees to provide those appraisals.

“I’m not just talking about property valuations, but it is unlisted assets, such as unit trusts or investment in foreign unlisted entities, those will be tricky,” Randeria told selfmanagedsuper.

“Trustees don’t usually try to get valuations wrong, but are often mistaken as to the level of evidence they have to provide to prove what an asset is worth.”

She added that where trustees may have difficulties securing a valuation or believe it has fallen drastically does not negate their obligation to provide some form of evidence to their auditor, particularly under the Division 296 tax regime.

“I often get asked by service providers, where the trustees believe an asset is worthless or a listed entity where they have put in $100,000 is now worthless, if they can value it down to nil and the problem will be gone,” she said.

“My response is ‘not really’ because they have to prove why they think it is worthless. The problem does not go away as they still have to prove to me using the ATO requirements as to why it is now worthless.

“This is the first year that will require valuations to be as accurate as possible because it is the first measurement benchmark.

“Can you imagine the ATO response if someone is sitting on the $3 million threshold and then claims an asset is suddenly worthless?”

She reminded advisers and trustees that auditors also had an obligation to report information truthfully to the ATO.

“Some trustees believe they will be able to recover their money, but just can’t prove it or are a little embarrassed they invested and lost out, so I report that as a contravention, stating there is a lack of valuation evidence,” she said.

“They can take that personally, as if they have done something wrong, and I have to explain I am just telling the ATO they don’t have the evidence, which is protecting them too because we are stating they have done their level best, but just can’t get that information.”