Speaking at a seminar, DBA Lawyers special counsel Rebecca James explained that for SMSF clients applying for the CGT relief, SMSF practitioners will need to ensure detailed records are kept for the client, detailing the cost base and market value of each asset they own.
Ms James said information substantiating the market value such as the methodology used to calculate that the value of each asset will also need to be kept.
“[For example], if the asset was a parcel of shares, was it the listed share price at close of business on the day of the election for the shares?” she said.
“Or if we’ve got property, have we got independent valuer’s reports to ascertain the value of the property?”
Ms James said the ATO typically does accept real estate appraisals for the valuation of a property but where the client is “getting to the pointy end of the value and they’re getting close to the $1.6 million, or they’re trying to argue that the value of a property has dropped” for example, “those might be circumstances where you might try and get an independent valuer’s report”.
“We’ve already seen this with the small business CGT concessions. That’s an area where the ATO really looks at it closely,” she said.
“We can expect valuations around CGT relief and the $1.6 million retirement cap to be a hot area for audit and review for the ATO. So, how we set out our records and substantiate our values will become important.”
Property valuations must be fit for purpose regardless of Super17. A real estate will generally provide an opinion and then the Trustee must determine the valuation of the property. This can be sufficient if the property is not unusual and there is easily obtainable evidence of comparable sales etc. It is generally not advisable if the property is ‘unusual’ in it’s features or location etc.
I would find it unusual that trustees would be looking to reset a cost base at a lower level than it’s book cost base even if it did bring members under the $1.6m unless it was a single member fund with no further contribution eligibility. A 2-member fund will end up with a a single TBC, in which to assess the retirement phase quantum, on the death of one of the members and, in most case, some will be either forced into accumulation phase or, out of the fund.
Trustees should avoid being short sighted in decision-making. Succession always should be considered and the pros and cons of the trade-offs between immediate strategy v future strategy need to be weighed.