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Correct property valuations will ensure tax concessions stay in place

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By Keeli Cambourne
05 September 2023 — 2 minute read

Getting correct and timely valuations of properties held in SMSFs under the ATO regulations is imperative if you want to avoid penalties or loss of tax concessions, warns a senior business services manager.

Lisa Philip, senior manager, superannuation, business services for BDO, said everyone involved in an SMSF, from trustees to members and financial and property sector experts, must fully understand ATO valuation guidelines and their relevance to SMSF properties as accurate valuations impact the calculation of member balances, contribution limits, and the fund’s overall financial health.

“Failure to comply with valuation requirements could result in penalties and the potential loss of the tax concessions SMSFs enjoy,” Ms Philip said.

“Understanding ATO valuation guidelines and their application to properties held within an SMSF is essential, however, following these guidelines is easier than it may seem.

“It primarily involves assessing your property’s value to ensure fairness and accuracy, while remaining compliant with SMSF regulations. By doing this, you’re safeguarding the fund’s integrity.”

The ATO has issued a precise set of guidelines for trustees to ensure that all assets within an SMSF are reported at market value, Ms Philip said, and adhering to these guidelines when getting valuations for properties ensures accurate reporting, aligning with tax and superannuation laws.

“One key aspect of the ATO valuation guidelines for properties within SMSFs is the frequency of valuation,” she said.

“The current ATO guidelines suggest a property held within an SMSF should be assessed against the market annually, and this assessment should be documented, however, if substantial events like renovations or shifts in the local real estate landscape occur, an updated valuation might be required sooner.”

Understanding what the ATO means by ‘market value’ in regard to property valuation is crucial, she said.

“Market value signifies the price attainable for a property in the open market between a willing buyer and a willing seller, who have reasonable knowledge of the property and are under no compulsion to buy or sell,” she said.

Under the ATO guidelines for a valuation to be considered ‘comprehensive’ it must include a clear description of the property, its location, and any distinctive features that could impact its worth as well as a clear indication of the current market value of the property.

Ms Philips said the methodology used to determine this value should be outlined, whether it’s based on recent sales data, an expert’s assessment, or other factors

“The valuation should also include any comparable properties considered in the valuation process must be specified, along with their relevant attributes,” she said.

“This is an essential part of the valuation as it provides evidence that the valuation is based on objective and supportable data and isn’t just based on one person’s opinion.

“It should also have an indication of the likely market rental income for the property, as the auditor is required to determine if the income received by the fund is on commercial terms and the report should mention the date of the valuation, reflecting the property’s market value at that specific time.”

Under the ATO guidelines, there is a limited range of professionals who can provide valuations. They include registered and independent valuers, real estate professionals, or online property valuation services.

“In most circumstances, a kerbside appraisal conducted by a local real estate agent is sufficient, provided all the above information is included,” Ms Philips said.

“There may be times when opting for a qualified, independent valuer is more appropriate, particularly when the property’s circumstances are quite unique, or the underlying lease agreements are complex.”

Correct property valuations will ensure tax concessions stay in place
lisa philip bdo smsfa ba5am5
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