Speaking at a recent Tax Institute event, DBA Lawyers director Daniel Butler said with the ATO paying close attention to the finer details of valuations, SMSFs need to be very precise in this area.
“We’re getting comments from ATO officers saying that there’s a disclaimer on the valuation by the independent valuer so we’re not going to accept that or they want an expert report to drill down on it,” explained Mr Butler.
Mr Butler said he has also seen other instances where the ATO will accept the valuation but won’t accept the terms and conditions of the valuation.
SMSFs therefore need to be very careful with valuations, particularly where there’s a risk of non-arm’s length income applying, he cautioned.
He also recommended that SMSF professionals and their clients ask the valuer to provide a pinpoint valuation rather than a range.
“You may get a valuation for a property that’s between $1 million and $1.1 million but when you’re faced with the auditor where along that line do you land? If you land at midpoint, why?” he stated.
“Don’t ask them to provide a range because then you’re put in the invidious position of [deciding] where you spot in that range.”
The gold standard for valuations, said Mr Butler is to get an independent registered valuation opinion.
“Make sure the valuer is properly briefed and that they have a fair and reasoned approach to their valuation,” said Mr Butler.
“There’s been some valuations that are just gobbledygook without comparable properties so you’ve got to check the valuation.”
Given that the non-arm’s length income provisions are retroactive, Mr Butler said in some cases SMSFs may have to go back and review valuations for assets purchased a long time ago.
“If you have valuations from the past when the practice was a bit looser such as relying upon a kerbside valuation you’re going to have to go back and pad them up because the law is retroactive,” he said.
“So something you bought in 2000, it doesn’t matter, it’s still up for NALI if the ATO alleges that it was acquired at an undervalue.”
Given some of the litigation cases in recent years, Cooper Partners Financial Services director Jemma Sanderson SMSF auditors said are on the hook for a lot of these issues.
“They’re quite rightly being overly cautious on what the acquisition value is and not wanting to sign off if the financial statements are overstated,” said Ms Sanderson.
Maybe the ATO, ASIC & APRA should have a look at Industry Super valuations of Unlisted Assets. ISA’s policy is to ask Fund boards what valuation they want 🙂
But of course Regulatory Capture Corruption will never see the ATO, ASIC or APRA attack their best buddies Industry Super, much better to keep trying to kill SMSF’s and then ALL Super can go to ISA Funds.
The ATO really do have it out for SMSF’s IMO, first the interpretation of the NALI/NALE provisions which come as a huge cost for getting it wrong for even the most insignificant amount with no real ‘mischief’ and now the same with valuations. Valuations are not a precise science and never will be and I’m sure they always include some disclaimer. Once again where is the mischief, the penalties are much larger than the supposed error of overstating the asset value and subsequent members balance. Only once the property is sold will the ‘market value’ be precise
Seems like the ATO is looking to justify their existence by picking fights where there is really no issue.
Would seem that the only real areas to be worried about are when members are close to the $500K mark for some conts caps & the $1.6M mark when looking at pensions. Apart from then, where is the issue? CGT will only come into play if sold and then if done smart, the fund will be on pension phase anyway….this is just lunacy
[quote=Anonymous]Some premium gaslighting of the profession by the ATO. Yesterday we had article talking about the ATO applying a common sense approach to NALE issues and to day we have this (!common sense) approach to valuations. Are valuation methods anything more than fancy tea leave reading? and unless a valuation that is given as a range is really close to a cap what difference does it really make when market value could be however much an arms length person feels like paying on a given day? Nonsense for the sake of nonsense.[/quote]
Couldn’t have said this better …. not helped by the legal profession milking the matter for all its worth.
A pin point valuation on a property is impossible and its absurd to expect one. The ultimate valuation will be when its sold and that will depend on a multitude of factors including a possible purchaser getting to the sale on time. The online .com.au valuations are the best as their algorithims collect all available data in the area and then generate a valuation range.
Some premium gaslighting of the profession by the ATO. Yesterday we had article talking about the ATO applying a common sense approach to NALE issues and to day we have this (!common sense) approach to valuations. Are valuation methods anything more than fancy tea leave reading? and unless a valuation that is given as a range is really close to a cap what difference does it really make when market value could be however much an arms length person feels like paying on a given day? Nonsense for the sake of nonsense.
well said