ATO assistant commissioner Kasey Macfarlane said while the valuation process for assets like shares and other listed investments is relatively straight forward, valuations for some of the more complex investments may not be so clear.
“What we often hear is that there’s not a market for unlisted investments so they can’t be valued or they don’t have a value,” she said.
“Our response to that is that it must have a value. Now accepting of course that some investments do of course fail, but apart from that, if an SMSF investment doesn’t have a value, you really have to ask the question of why the SMSF invested in it in the first place.”
Ms Macfarlane said this also raises questions about the SMSF trustee’s adherence with their investment strategy and the sole purpose test.
When it comes to valuing these types of investments, she said, the financial statements of the unlisted entity should be the starting point.
“Of course you’d probably have to be pretty lucky if the assets within those financial statements are actually recorded at market value, and it is probably quite unlikely. So, in that case you need to go to the next level and ascertain the market value of the underlying assets so that you can attribute a value to that unlisted investment,” she explained.
The ATO, she said, also receives a lot of questions about valuations for artworks, collectables and personal use assets.
“In terms of valuing those, if the item has recently been purchased, then the purchase price is likely to be a reliable indicator of the value,” she said.
“Alternatively, you might seek an independent valuation. So, for example, with artworks, you might seek an appraisal from the gallery where the item was purchased.”
For real property, an independent valuation by a professional valuer is one of the strongest pieces of objective evidence to support a value that an SMSF trustee can use, she said.
One of the questions that is often asked, she said, is that if the independent valuer specifies a range, for instance they might say a residential property is valued between $1 million and $1.5 million, then what value should they pick?
“The answer to that is we would accept that if it’s been undertaken by an independent valuer in accordance with record standards then any value within that range is okay but the important thing is don’t start picking different values in that range for different purposes,” she said.
“So, do not try to attribute a higher value in that range for CGT relief purposes and then a lower one for total superannuation balance and transfer balance cap purposes.”
