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Property valuations still 'high on the audit hit list'
SMSF auditors are requiring valuations for many property investments again this financial year, and in some cases seeing pushback from trustees.
Speaking to SMSF Adviser, BDO partner, superannuation Shirley Schaefer cautioned that SMSF auditors are paying close attention to property investments again for audits for the 2020-21 financial year.
"Property valuations are still high on the hit list, they vary from area to area, but generally you would expect to see a significant increase up to 30 June 21, for most property investments," explained Ms Schaefer.
In some cases, Ms Schaefer said auditors are getting some pushback from trustees because they might have had the property valued or appraised at 30 June 2020.
"I know auditors are saying well if you're saying it hasn't increased from June 2020, then [you still need] to get confirmation from the person who did the appraisal that the value is still relevant and is still current because there will absolutely be examples where property prices haven't changed, but auditors are not property agents," said Ms Schaefer.
Property valuations for SMSFs have been an area of focus for the ATO and auditors for a number of years, with the regulator releasing various pieces of guidance on what SMSFs need to provide to their auditor in order to comply with regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994.
Evolv audit associate director Daria Galstyan told SMSF Adviser in August that while many of the requirements for property valuations are straightforward, some transactions can be more of a grey area.
The required evidence, Ms Galstyan explained, may become problematic when there are transfers of properties in and out of the fund between related parties.
“Most trustees utilise a direct sales or market comparison approach to support the market valuation of property,” she said.
“For commercial properties, the issue is the lack of readily available market data, with some properties also being special purpose in nature. It can be quite difficult for the trustees to actually determine market value without seeking assistance from a commercial real estate specialist or a registered valuer.”
Miranda Brownlee
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 also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
The ATO market value guidelines are clear yet still ambiguous when it comes to real estate. It’s clear that to satisfy SIS Reg 8.02B something needs to be done every year. It’s also clear that “appraisals” must be done every year, and must contain evidence of comparable sales in the area. What is not clear is how “valuations” by a qualified valuer are distinguished. The ATO says that a valuation can be obtained “less frequently than annually.” It does not stipulate that less frequent period then goes on to say that that valuation must somehow be substantiated each subsequent year? What does that mean? Another appraisal every intervening year between valuations? Why not just do appraisals every year then? The ATO market value guidelines we’re overhauled in October 2020, but they need more clarity, and removal of the contradictions.0
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