Shelley Banton, head of technical for ASF Audits, said while Div 296 is not a requirement of an audit engagement, it will affect the sector through market valuations, which continue to be a problem.
“The reason is that trustees must still provide us with that objective and supportable data in the form of documented evidence to support the valuations in the financials every single year,” Banton said.
“Let’s think about the ATO’s market valuation campaign, where about 16,500 trustees and 1,000 auditors all received letters where the asset values remained the same over a three-year period, but the auditor didn’t lodge an ACR. There’s potentially nothing wrong with that, but the assets that drove this campaign were property and unlisted entities.”
Banton continued that the ATO is now checking those asset values to see whether there has been any change and, if not and no auditor contravention report is lodged, it is expected the regulator will contact the trustees who received the original letters.
“Independent, qualified valuations are not necessary and not required under the auditing standards or the SIS Act, but valuations must use a fair and reasonable process that takes into account all the relevant facts and circumstances,” Banton said.
“It is not our job to value the assets and where we don’t have sufficient appropriate audit evidence, the ATO has said that the auditor must consider modifying their audit report. As we’ve already seen, it will be the more complex assets, such as unlisted entities and commercial property, that’s going to provide the most headaches regarding the new super tax legislation.”
She said those most affected in terms of the tax and obtaining market valuations will be members who are on the cusp of the $3 million threshold. There will also be others trying to stay under $3 million, while those who are over the threshold will be looking to “max out” that market value at June 2025 and then have the lowest possible value in June 2026 to minimise the tax.
“So, we will be looking very carefully at market valuations to ensure that assets aren’t materially misstated,” she said.
“If you do have to lodge an ACR for a breach of regulation 8.02b, and the ATO also can’t work out how the trustee obtained the value, or concludes that the most appropriate valuation method hasn’t been used with that asset in line with their its valuation guidelines, it will then apply the most appropriation valuation method it sees fit to determine the value.”
Furthermore, Banton said this can result in widespread problems depending on the client’s transfer balance cap.
“Whether they’re on the borderline of Div 296 or not, there can be a variety of tax and compliance repercussions, which means it’s in the trustee’s best interest to get it right in the first place,” she said.
Trustees, therefore, have several options when thinking about obtaining market valuation, Banton said.
“If we start from the initial question of whether the trustee wants to pay for an independent market valuation report, if the answer is yes, well, it’s ready for order, it’s good to go, and they’ll get the green tick of approval,” she said.
“Most likely if the answer is no, then there’s another question that needs to be asked: is the trustee willing to put the time and effort into obtaining that objective and supportable data that we can give the green tick to?”
She added a secondary question: who is going to spend the time determining this – the trustee or someone independent?
“If this is done haphazardly, and doesn’t hit the mark, then there is the potential for a reg 8.02b issue that may be reportable to the ATO, because you’re required to report when a first-time breach is either five per cent of fund assets or $30,000,” she said.
“Then you have to lodge that ACR. It also means that the statement of financial position is materially misstated, which ends up being a Part A qualification as well. The ATO is getting very serious about market valuations, and if the trustee doesn’t want to pay for one, then they have to spend the time gathering that required evidence.”
