Exaggerated market valuations tipped to rise
The SMSF industry may see a large number of “inflated property values” in coming months, an SMSF auditor has predicted, as SMSFs search for ways to adhere with the LVR levels specified in the ATO LRBA guidance.
SuperAuditors director Shelley Banton said some trustees will struggle to meet the 70 per cent LVR maximum listed in the ATO guidance for non-commercial loans by 30 June with the ratio traditionally around 80 per cent.
SMSF trustees, she said, may already be experiencing cash flow issues because under the ATO guidance they must make monthly payments from 1 July 2015 that must include both principal and interest.
“From a cash flow point of view some SMSFs may struggle to meet those safe harbour guidelines by 30 June, because they don’t have a lot of time,” said Ms Banton.
“There’s only around eight weeks to bring these up to date and to find the available cash in order to bring them into line with what they should be as of 30 June.”
SMSF practitioners and their clients, she said, may try to obtain an exaggerated value for the property in the loan in order to bring down the LVR in a short time frame in cases where the SMSF has limited cash.
“There could be some market valuations coming through that look very out of character, in order to reduce LVRs. I guess they’ll have to be looked at on their own merit,” she said.
“SMSF trustees would need to be able to prove that the market value of that asset has jumped significantly in order to reduce their LVR, but certainly different real estate agents put different prices on properties.”
SMSF practitioners with clients that are in circumstances that are unable to meet the new guidelines in place, she said, should be contacting the ATO to let them know what’s happening.
“Hopefully that way they’ll be able to get some assistance from the ATO in terms of getting the safe harbour conditions in place as soon as they possibly can,” she said.
“I think the ATO put this out to make sure there’s nothing on arm’s length and I don’t think there’s going to be too much leniency taken because the guidelines are very specific in terms of what the trustees have to do by the end of the financial year.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.