Anthony Cullen, senior SMSF educator for Accuriurm, said trustees must obtain correct market valuation under regulation 8.02B of the Superannuation Industry (Supervision) Act, a requirement that has been in force since the 2012–13 financial year.
“We’re 11 years from the change in the regulations, and we are still having conversations about market valuation,” he said.
“The concept of market value is defined in Section 10 of the SIS Act, and what auditors are looking at is a buyer and a seller dealing on an arm’s length basis. The transfer of the asset, or the value of that asset, is based on what it would be if there was proper marketing of that investment.”
When acquiring an asset from a related party, the correct market value still has to be calculated.
The issue of correct market valuation was highlighted last year when more than 16,000 SMSF trustees and 1,000 SMSF auditors were put on notice by the ATO after it identified inconsistencies in the valuation of assets. Guidance was issued that these should be done on a yearly basis.
“If you’ve been around the industry long enough you will remember you could get away with doing a valuation every three years. But that is a myth that has been well and truly busted over the last few years,” Cullen said.
“There are trustees out there that are still not taking the steps required to revalue [their assets] every year. The ATO is basically putting trustees and auditors in the spotlight, and stating that if funds are not updating their records each year, it is a major concern.”
As well as complying with section 8.02B, Cullen said the ATO also communicated concern that auditors were not thoroughly determining if there had been any charge over an asset and warned that it would potentially be scrutinised further in the coming months.
“This is not because the auditors are making it difficult, they are just doing their job.”
“This is where it comes back to market. We need to educate our clients on what the expectations are. The expectation is that assets are valued at market value every single year. We could also expect that the auditors are going to be looking at whether there are charges over the asset.”
He continued that with property, auditors would potentially want to look at the title of the property annually.
“A few years ago there was another communication from the ATO in relation to diversification and LRBAs and these communications affect changing auditor behaviour.”
“Subsequently, we can expect that again, when audit behaviour changes, we need to be aware of it. We need to make our clients aware of it as well. One thing that we’re looking at in market values is it’s not the auditor’s job to value assets, it is the trustee’s job to provide objective and supportable evidence.”
