Natasha Panagis, head of technical services at the Institute of Financial Professionals Australia, said in a recent webinar that not all assets are easy to value at 30 June for the purposes of the total super balance and the subsequent Div 296 tax.
“Valuations can be quite subjective. They can vary quite widely between assets, and also they can vary between valuation experts as well,” Panagis said.
“You could have two very different values, and both could be technically correct. I think there will be an issue there [regarding Div 296 tax] as these valuations are going to impact the amount of tax paid by members. There might be disputes arising between trustees and valuers, potentially due to this taxation of unrealised gains. And we might see trustees shopping around for the best outcome.”
She predicted increased pressure on auditors who would be forced to undertake extensive investigations to determine whether trustees are reporting the right values.
“[They will also have to ensure] the amounts are on arm’s length, because the lower the value, the lower amount of tax paid, and this is going to be particularly an issue for auditors.”
The current asset valuation rules for SMSF would not change with the introduction of Div 296, which is contained in section 802(b) of the Superannuation Industry (Supervision) Act and requires that all SMSF assets must continue to be reported at market value.
“That requirement is still there. We still need to be looking at market value. But the implementation of Div 296 is going to bring increased scrutiny to asset valuation, and it’s something that the ATO is already starting to demonstrate,” Panagis said.
“They’re already looking closely at our market values that are determined, particularly at year end, because these values are going to impact a member’s TSB, and therefore can impact their eligibility for contribution caps and other concessions, and potentially Div 296 as well.”
She added that it would be even more critical for auditors to supply not just accurate asset evaluations but strong, supportive evidence.
“In the past, if valuation evidence was lacking, the common approach was to flag the issue and ensure that it was rectified in the following financial year.”
“But with Div 296, that’s just not going to cut it. If trustees can’t substantiate evaluation, auditors will potentially need to lodge an auditors’ contravention report, and this could prompt the ATO to investigate further and assess Div 296 liabilities with particular attention on those reported values.”
It would also add additional complexity, more compliance burdens, and more difficult to value unlisted or illiquid assets, Panagis added.
“In short, auditors should just prepare for increased valuation-related scrutiny from the ATO and more complex audit procedures.”
As an SMSF accountant there has already been significant scrutiny from auditors on valuations – especially property valuations, which has come from ATO scrutiny on them.
Realistically, how much is a Trustee going to be able to fluff a valuation to stay under the threshold? With the requirements to “objective” data being provided to back up the trustee’s valuation, I think it’s probably not the issue people are making it out to be.
I am an SMSF Auditor.
With respect, valuations have always been an issue.
Division 296 may put so emphasis on Valuations, but in prsctice no more thsn usually “PROVIDED” the Trustees took reasonable care when getting a “current market value”.
We do not need to jump at “ghosts” or exeragerate issues.