Bryce Figot, special counsel for DBA Lawyers, said auditors and trustees COULD face challenges in the valuing of unlisted securities, but there must be evidence that steps have been taken to do so using a qualified, independent valuer.
In a recent technical update, Figot was asked how an SMSF may get a valuation on an Australian-listed shareholding delisted from the ASX and become a private company run out of the US due to compliance costs.
Furthermore, the investment was a major one for the SMSF in question. Despite the financial professional asking for a valuation from the company, they had been unable to obtain one.
“It is going to be hard for the SMSF to prove what market value is,” Figot said.
However, the ATO’s expectations for documenting valuations and the importance of considering all relevant factors could mean issues with relying on financial statements from directors or trustees, so there is a need for objective and supportable data.
“There could be some alternate things that can be done. If the SMSF has shown that it’s tried to get a proper valuation and can’t, it can show that other shares in the company were sold on arm’s length terms between unrelated parties, each acting in their own best interest and having gone through a process of real bargaining,” he said.
“If the fund can show recent sales of shares, I think that would be quite good. But unless you can get a proper valuation report, or you can show recent sales of shares consistent with arm’s length dealing, that’s too bad. I think that the fund has to accept that part of its cost of owning the investment is that it will get some ACRs.”
Figot added that there are rules documenting investments in unlisted and other tricky investments with professional discretion.
“Auditors, firstly, should hope for the best, plan for the worst [outcome]. The ATO is very good with their metrics, and identifying data from statutory returns. They’re good at reviewing the trickiest file, so think about your worst work on your worst day and that’s what you know you have got to assume,” he said.
“The best protection if you are doing something tricky is to review Guidance Statement 09 and the ATO website guidance and closely, expressly and in detail document that in particular when it comes to tricky investments.”
