With the onset of the end of financial year, SMSFs are in the spotlight with the ATO and Superannuation Industry regulations clearly defining their requirements.
What is clear is that SMSF trustees are legally bound to accurately record all of their assets, clearly stating their market value.
It is also clear that failure to comply with mandatory reporting requirements can potentially result in serious consequences for those responsible.
In recent times these reporting requirements have come under even sharper focus given recent events related to Covid-19 and the potential impact that this event has on property values.
It is therefore timely to remind readers of their obligations.
With respect to the impact of the COVID-19 pandemic, it is evident that some sectors of the property market throughout Australia have been impacted significantly and the majority of property assets have experienced a shift in their value (some positive and some negative).
Under the ATO guidelines it is recommended that in the case where a ‘significant event’ has occurred, which the Covid-19 pandemic is specifically referred to as an example of, an asset should be valued.
Many auditors are therefore recommending an updated external valuation be undertaken to ensure the fund complies.
As a large independent property business with multiple offices and highly experienced professionals across the country, Acumentis is acutely aware of the rapidly changing property values and understands the critical nature of determining an accurate, well-considered valuation for financial reporting.
This extensive coverage and local knowledge are important given our experience suggest that the ATO is less likely to contest or query a valuation when it has been provided by an independent and appropriately qualified licensed property valuer.
Given the changeability of our market in this Covid-19 environment, particularly the residential housing sector, and complexities within the commercial sector, many past SMSF assessments would now be deemed inaccurate.
In the commercial sector there are many competing factors now influencing commercial markets in ways that may not have been given the same focus prior to Covid-19 such as;
- Our current low-interest rate environment, which has continued the trend of yield compression;
- Flight towards quality assets ie quality buildings and secure tenants;
- Increased demand for industrial assets particularly those linked to logistics;
- Changing customer behaviours are also directly influencing the retail sector, with some sectors benefiting significantly after the Covid-19 pandemic. Supermarkets and pharmacies are just two examples.
With that said, boutique retail, hospitality and food and beverage sectors have typically been impacted negatively, particularly where businesses previously relied on International tourism, or where lockdown measures are causing disruption.
A refocus on suburban retail hubs as the population shows a trend towards a local, “close to home” focus in preference to travelling to CBD areas. This is resulting instability across the local markets and softness in some CBD areas, which prior to Covid-19 where considered prime high traffic precincts.
Independent valuations are based on an accurate and objective collection of data/evidence, industry methodologies and processes, due diligence and risk mitigation. Ultimately following proper valuation processes and engagement with an appropriately qualified expert will result in a clear, reliable assessment of value for financial reporting.
The COVID-19 pandemic and market movements have indeed been a catalyst for those with SMSF’s to strongly consider a re-valuation of any property assets held.