In an updated version of its valuation guidelines, the ATO has clarified that SMSF professionals and their clients can use a reasonable estimate for determining the value of assets that support a pension when reporting to the ATO. However, there are other situations where a reasonable estimate cannot be relied on.
The ATO reminded professionals and SMSFs that the market value of the assets that support a pension or super income needs to be determined on either the commencement day of a pension or, for ongoing pensions, 1 July of the financial year in which the pension is paid.
“Similar to valuing assets for the purpose of financial reports, the valuation can be undertaken by anyone as long as it is based on objective and supportable data,” it stated.
“Where the nature of the asset indicates that the valuation is likely to be complex, you may also consider the use of a qualified independent valuer.”
The ATO said it is expected that the SMSF trustees know the value of the assets in their fund.
“This does not mean that an external valuation needs to be performed for all assets each year. However, an external valuation of an asset such as real property may be prudent if you expect the valuation is now materially inaccurate or a significant event has occurred since it was last valued,” it said.
The ATO stated that it is acceptable to use a reasonable estimate of the value of the account when a pension is commenced partway through the year.
“It is also accepted that a reasonable estimate value of the account balance can be used when calculating the value of a pension for transfer balance cap purposes and the pension commenced on 1 July, you need to report the event to us by 28 October and a full valuation of the assets supporting the pension is not possible by this date,” it stated.
The ATO noted that it may be difficult to value assets such as private company shares by the date the TBAR is due.
“Although a reasonable estimate of the value of a pension can be used in the circumstances described above, you cannot rely on this reasonable estimate when preparing the SMSF’s financial accounts and calculating the SMSF’s entitlement to exempt current pension income (ECPI),” it warned.
Haha.. This is absolutely nothing new!!!!
Why can’t the ATO use the same date? Funds are obligated to value to market on 30 June for financial reporting purposes. This guideline says they must value to market on 1 July for pension purposes. What a waste of resources? My guess is that the practical implications are the values on 30 June are used for all purposes, but clearly this is not what the ATO’s guidance requires. How about some commonsense ATO please? Can you update your guidance so that there is no double-valuation dates required. (Or at least specify the opening value on 1 July i.e. closing value on 30 June
So where does this leave us? back where we started? “….cannot rely on the reasonable estimate when preparing accounts..”
So for direct property the trustees have to PAY for a formal valuation every year an for private company shares, especially minority interests we??????
While the focus is on valuation of assets, it is but one step in calculating “account balance” as defined in the SIS regs for pensions.
Account balance by definition includes an allocation of earnings, expenses and taxes, which can be problematic in estimating, particularly where trust distribution tax components are unknown.
Large funds, which invest mostly in managed investments, have been using just the value of assets less contributions tax for decades, which ultimately never equates to the final account balance at reporting date.
Why should this higher more precise standard be imposed on SMSFs and yet large funds can do what they like, just because they are regulated by APRA and not the ATO?
After all, it’s the same taxation laws for all super funds and their members that we are talking about here.