The ATO has recently announced a focus on ensuring that SMSFs are complying with the requirement to value assets each year at market value.
The valuation of super fund assets also has a direct flow-on effect in the calculation of a member’s balance in the fund, and therefore the member’s total super balance. There are many aspects of super funds that are affected by a member’s total super balance, including:
- The ability to bring make use of unused concessional contributions caps of the last 5 years
- The ability to bring forward non-concessional caps of future years
- A member’s non-concessional contributions cap
- Eligibility to receive government con-contributions
- Eligibility to receive the spouse contribution tax offset, and
- Eligibility for the one year work test exemption
With the likely introduction of the Division 296 tax, which will impose an additional tax on members’ balances over $3m, there has been an increased focused on the valuation of assets.
SIS regulation 8.02B provides that super funds must value their assets each year at market value in preparing accounts and financial statements. SMSF auditors are required to obtain sufficient audit evidence to be satisfied that this requirement has been met. Section 10(1) of the SIS Act defines “market value” as the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if they were dealing at arm’s length, there was proper marketing of the asset, and both acted knowledgably and prudently in relation to the sale.
It is worth noting that this definition of market value does not take into account selling costs. However, a member’s total super balance is calculated on the basis of the total value of the benefits that would become payable if the member voluntarily caused their interest in the fund to cease, which will be net of selling costs. So it is possible for there to be a difference between a member’s interest in the market value of fund assets, and a member’s total super balance.
The ATO has announced it is scrutinising more than 16,500 SMSFs which have reported certain classes of assets at the same value for at least 3 years. These include residential and commercial property, and unlisted companies and trusts.
The ATO is concerned that funds might not be meeting the requirement to value assets at “market value” each year. Failure to meet these requirements could potentially result in the imposition of administrative penalties on funds for failing to meet the SIS regulations.
We expect that the valuation issue will become only more critical with the introduction of Div 296 tax from 1 July 2025, especially in situations where a member’s balance is approaching $3m.
Next steps
Please contact your Nexia advisor if you have any questions or concerns in relation to the valuation of assets in your SMSF.
