Your Scenario:

You own both commercial and residential investment properties in your SMSF, you are using a real estate agent to manage them in terms of collecting rentals and meeting outgoing expenses.

Question:

What steps must you take to satisfy the Financial Year end’s independent audit and ATO’s valuation requirements?

Answer:

For subsection 35B(2) of the Act, when preparing accounts and statements required by subsection 35B(1) of the Act, an asset must be valued at its market value. Market value is defined in subsection 10(1) of the Act.

Tax Tip:

When valuing real property assets for SMSF financial reports, the valuation may be undertaken by anyone as long as it is based on objective and supportable data, e.g. providing 2 – 3 comparable recent sales evidence is considered substantiative. A valuation undertaken by a property valuation service provider, including online services or real estate agent would be acceptable.

For preparing SMSF financial reports, an external valuation of real property is required each year. A recent valuation however would be prudent if you expect that the valuation is now materially inaccurate or an event occurred that may have affected the value of the property since it was last valued. This may be due to a change in market conditions or a natural disaster.

When valuing real property, relevant factors and considerations may include:

• the value of similar properties
• the amount that was paid for the property in an arm’s length market
• independent appraisals
• whether the property has undergone improvements since it was last valued
• for commercial properties, net income yields.

Common Traps:

If the properties held within your SMSF are incorrectly valued while it is in pension phase, it could result in your pension receipts being either overvalued or undervalued. Further, it also has a direct impact on your Total Super Balance (TSB) resulting in your ability to access bring-forward concessional contributions, non-concessional contributions, spousal contributions, or government co-contributions.

Disclaimer

GW Capital Group Pvt Ltd General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. please seek personal advice prior to acting on this information.