Speaking at a recent conference, BDO superannuation partner Shirley Schaefer said there had been significant increases in values during the 2021 year for lots of properties, and while there may be some areas and regions that weren’t impacted, this is quite rare.
“[Where that is the case], you need to have documentation to confirm that,” said Ms Schaefer.
Ms Schaefer reminded SMSF professionals that the ATO had changed its guidance around property valuations, outlining that kerbside appraisals from the agent or an email from the agent stating what its worth will not be enough information.
The valuation must include comparative sales data, she said, and if the appraisal is from a real estate agent, they should have that information at their fingertips; it’s just a matter of them including it in their reports.
“It doesn’t have to be based on independent valuations. Trustees are able to do valuations of assets; it’s not a requirement to have an independent valuation except in some limited circumstances,” Ms Schaefer clarified.
“The auditor wants to know what that valuation is based on. The great catchcry from the ATO is that it’s got to be based on objective and supportable data, so simply having a valuation minute that says this property is worth $500,000 isn’t going to cut it from an audit point of view.”
Ms Schaefer said auditors want to know what the trustee has based that valuation on.
“If they’ve done their own research, then attach that to the valuation. I have my own SMSF, it’s got a property in it, and when I do my valuation minute, I attach the research that I’ve done from realestate.com.au and various sources to show what I’ve been looking at to come up with the value,” she explained.
She warned that in situations where the valuation cannot be substantiated in any way, there would be a qualification of the audit report.
“It’s going to be a qualification of both part A and part B. Part A of the audit report is around the financial statement audit, so there will be, hopefully, just an ‘except for opinion’, so basically the auditing saying that they cannot verify the value of the asset. Part B is obviously SIS compliance, and that’s about not complying with regulation 8.02B of SIS, which says all assets must be at market value,” she said.
“Again, it’s not the auditor saying that it’s not market value; it’s the auditor saying that they don’t know if it’s market value, as not enough evidence has been provided, so the catchcry for the auditor is sufficient, appropriate audit evidence. In most cases, if you’ve got a contravention around this, you’ll also get an auditor contravention report because in all likelihood, it’s going to be a material contravention or more than $30,000.”
She also stressed the importance of trustees explaining their thought process.
“Auditors aren’t mind readers; we do need to see things. If you’re using an older valuation, for example, then the auditor will want to know that that’s still current.
“We are not necessarily familiar with all regions in Australia and locations, but if you can get an email from the agent that confirms that the values haven’t moved much in the past 12 months and that it is still relevant, then the auditor is very likely to accept that because it’s coming from somebody who’s skilled in that area.”
Other documentation for properties, she said, can be a current lease agreement or rental appraisals.
“Also current land title searches, obviously auditors can do that themselves as necessary, but if you’ve already got them, it would be useful to send them through as well,” she stated.
Where do auditors sit on RPdata as supportable evidence? Can it be relied upon?
It is a bit hard when there is no comparative data available due to no prices being shown a lot of the time on realestate.com and other especially for commercial properties and if you cant get a real estate agent to provide a valuation with some comparative data you would need to go to get a formal valuation and these can be quite expensive for commercial and the valuations today are not worth what they are written on as the properties are being sold for much higher than expected, so how can the auditor be confident in any valuation, it is just another hurdle that is slowing the audit and in turn the lodgement process up..
Sure, it can be difficult, but this can’t keep being used as an excuse. The trustee know (or should know) the requirements prior to buying a property and if they aren’t willing to comply with the legislation, they why do they have those assets or why do they have an SMSF. There are now too many thresholds that rely on the member balances each year and the old ‘we will get a valuation next year, or we had one less than 3 years ago’ just doesn’t cut it any more. There is no requirement for a formal valuation, but the Trustees writing it on a piece of paper or a minute is not sufficient. A formal valuation gives the auditor extra comfort as its detailed and the person has the relevant qualifications so it is easier to rely on.
As if a real estate agent doesnt have an accurate handle on what a property is worth?? Its hard enough getting an agent to do an appriasal for free let alone getting them to attach or comment on comparative sales data. Their brain and everyday expoerince IS the comparative sales data. Not sure why it matters so much anyway when unrealised gains are not taxed.
If the real estate does not provide evidence on their curbside appraisal, how does the auditor know the real estate put any effort into the considering the value or just pulled an average price out of their hat?
Asset valuations have become impactful since 2017. Member balances are calculated based on asset values and member balances impact many items. This includes, but is not limited to, pension payment minimums, pension commencement values/TBA, contributions limits, TSB.
Well it can impact lots of things, pension minimums, total super balances that restrict contributions, member balances if members want to rollout of the fund. If there is uncertainty over the valuation, it creates risk around the minimum pension and if the minimum pension is not met, it can affect the exempt pension income status. Similarly, if in accumulation, it could affect the members ability to make non concessional contributions or to catch-up on unused concessional contributions. There are lots of flow on impacts aside from tax.
one reason would be pension minimums are based on asset valuations so if assets are undervalued the capital in the fund isnt reduced at the intended (ATO) rate