Self-Managed Super Funds (SMSFs) provide individuals with greater control over their retirement savings, but they also come with complex regulatory and compliance requirements. Property valuations play a crucial role in maintaining compliance and making informed financial decisions. To explore the intricacies of SMSF property valuations, we spoke with Charlotte Jackson, Senior Client Manager for SMSF Administration & Advisory at Findex. Charlotte shares her insights on valuation requirements, compliance challenges, and the evolving landscape of SMSF property management.
About Findex
Q. Can you tell us a little bit about Findex & your role within it
At Findex, we provide a holistic offering of services to meet the financial needs of our clients across their personal and professional lives. Findex is a leading integrated advisory firm, we operate in more than 100 locations across Australia and New Zealand.
One of our key services is SMSF administration and advisory. As a chartered accountant and SMSF senior client manager with over 20 years of experience, I help our trustees to navigate the complexity and compliance requirements within Superannuation.
Q. What are the key benefits that Findex offers to SMSF clients?
We have a great network of SMSF specialists across Australia who can assist with the many facets of superannuation including wealth advisory, tax and compliance, risk and insurance, specialist tax advice, and external audit. We assist our members with their financial and lifestyle goals through all stages.
Property Valuation Needs & Process
Q. Who requires an SMSF Property Valuation and why?
Several key events occur within a financial year that will require trustees to determine the market value of their SMSF Property. Some of the most common include:
- Preparing financial accounts and statements. This event requires a trustee to value all assets held at market value and the valuation should be based on objective and supportable data.
- Superannuation balance calculation: A member’s total superannuation balance is calculated annually on 30 June and used for determining eligibility to make contributions.
- Determining the value of assets that support a pension. The market value of the member's account balance needs to be determined on the day a pension commences and ongoing on 1 July of the financial year for calculating pension minimum withdrawal requirements.
- Acquiring a commercial property from a related party. Trustees must ensure the transaction is conducted on arm’s length terms.
Q. Who typically arranges the property valuation for an SMSF?
For our client base, it is typically the trustee that arranges the valuation for commercial properties. Many trustees have existing relationships with property agents who may manage their properties. For those trustees managing their property themselves – typically when the tenant is a related party - as the accountant, we provide guidance and facilitate valuations upon request.
Q. How do you currently arrange valuations for clients with SMSF-held property?
For valuing assets annually for financial statement purposes, we may use the service offered by an auditor or related real estate agent. As an accountant, we will contact the auditor or agent to request a general report that will contain supportable data, such as comparable sales.
This is a report generated based on a specific property address and provides a statement of information on ownership, sales and listing history & other property information. An indicative selling price is provided based on Median sales prices in the local area and comparable properties.
Our current accounting software systems also provide similar reports for residential properties.
The information in these reports may not be available for all properties and sometimes not accepted by trustees. There may also be events where these types of reports are not suitable, in particular for stamp duty calculation purposes. Often when a fund owns a commercial property leased to a related party, a rental appraisal is also required. In these circumstances, we seek the services of a real estate agent or property valuer.
Q. Are all property types in SMSFs required to be valued?
Yes, all SMSF-held properties, of any property type, are assets of the fund and will be required to be valued in compliance with the Australian Taxation Office guidelines.
Q. How often do you recommend arranging these valuations?
We recommend that the trustees follow the valuation guidelines provided by the ATO and value the fund’s assets at market value annually. While a qualified independent valuation is not required for annual reporting, trustees must ensure their valuation approach is based on objective, supportable data.
Q. Is a real estate appraisal sufficient for SMSF reporting?
It is the approach undertaken by the trustee to determine the market value that is important, not who conducts it that makes it acceptable. Whoever conducts the valuation must base their valuation on objective and supportable data and give evidence of this. A real estate appraisal may suffice; however, it will always depend on the situation, the type of property owned, and the data that is available.
Q. Does a valuation for SMSF reporting always require a physical inspection?
No, a physical inspection is not necessary for the annual market valuation purposes when there is other evidence available.
Q. How do you handle cases where a client hasn’t had a property valued for many years? Can back-dated (retrospective) valuations be arranged?
If the property value has not changed in year-on-year comparisons of financial statements, this will raise a flag with the ATO. We have assisted clients in obtaining valuations from past dates with the services provided by property valuers, such as Acumentis.
Challenges & Compliance Considerations
Q. What are the most common hurdles when arranging property valuations for SMSFs?
The most common hurdles are when there is limited evidence available, especially in remote areas of the country. In these cases, you cannot obtain the generic property information reports and will need to seek the services of a professional. Another hurdle can be turnaround time and finding an agent or valuer that can provide a quick service when dealing with time-sensitive events.
Q. How do you navigate these challenges?
We assist trustees in gathering what evidence is available, considering all relevant factors and valuation methods. In these circumstances, we also engage the services of other property professionals.
Q. Are all SMSF financials audited?
Yes, it is a requirement that trustees appoint an auditor each year. The annual audit is required to check the validity and accuracy of the SMSF financial statements and their compliance with the superannuation legislation and regulations.
Q. What are the common queries auditors raise about property valuations?
Auditors will request additional information to assess the property valuation where no objective and supportable data has been listed or information contained is conflicting. We are often provided with a letter from an agent specifying a value for a property or suggesting a selling price but not listing evidence on what supported that valuation.
If a property has undergone significant improvement, the auditor may query this and want to ensure a valuation has been obtained after these improvements have been completed.
Q. What do auditors require to satisfy the ATO reporting guidelines for SMSF property valuation?
The asset valuations are reviewed by the SMSF auditor each year. They will check that assets have been valued correctly, assess and document whether the basis for the valuation is appropriate. The auditors require sufficient and appropriate evidence.
If the auditor is not satisfied with the evidence provided, they may issue a qualified audit report.
Industry Trends
Q. Do you believe that the proposed Division 296 $3 million super tax is likely to proceed?
This has captured our industry's attention since it was proposed, with many industry specialists opposed to this legislation as currently drafted. The drivers of this opposition is the concern about taxing unrealised gains and no indexation application to the threshold. Whether it is likely to proceed will depend on the outcome of the federal election.
Q. Are there any trends or upcoming changes in SMSF property valuation?
Major SMSF software providers are advancing their services in relation to property valuations. This will assist trustees with meeting their compliance requirements providing a cost-effective and efficient alternative to obtaining a property valuation.
Q. How do you see the role of professional valuers evolving in the SMSF landscape over the next decade?
Whether it be the introduction of the proposed Division 296 tax, or future changes to SMSF, the need for cost-effective and reliable property valuation services is an annual need for SMSF trustees.
Q. Has the Acumentis fixed price SMSF desktop assessment service been beneficial for the Findex team and your clients?
Yes, it has been welcomed by our trustees. The SMSF desktop assessment service has been cost-effective and efficient.
In one case, we had a fund that required multiple years of accounts prepared, and a member had passed away 2 years prior. Acumentis was able to provide a valuation based on past years that assisted with administering the death benefit payout.
Last financial year we had a fund that was winding up and a commercial property located in far north Queensland needed to be transferred to the members. The fund required a valuation for stamp duty purposes, and this was requested in late June. Acumentis had previously provided a valuation on this property and has inspected the property within the previous 12 months. To provide a fast turnaround, they were able to provide the required valuation without the need for inspection. This allowed for the transfer form to be lodged and stamped by 30 June.
Final Thoughts
Successfully managing an SMSF requires careful consideration of regulatory requirements. Ensuring compliance and making informed decisions can be challenging, which is why engaging professional service providers—such as accountants, auditors, real estate agents, and property valuers—is critical.
Their expertise helps trustees navigate complexities, maintain compliance, and protect their retirement investments.