The Australian Taxation Office (ATO) has underscored the necessity of regular asset valuation within Self-Managed Super Funds (SMSFs). This is particularly pertinent for property assets, as the ATO has been actively monitoring funds that neglect regular updates of their reported values.
The introduction of the new $3 million cap on SMSFs, irrespective of its advantages or disadvantages, accentuates the importance of precise asset valuations. This cap, which will take effect from 1 July 2025, could potentially lead to increased scrutiny from the ATO. Is it a coincidence that the ATO has been scrutinising those funds where asset values are not regularly updated? This aligns with the ATO guidelines that mandate updated valuations following a significant event. While the pandemic is specifically mentioned, significant events continue to occur post-pandemic, including inflation pressures, interest rate changes, construction cost fluctuations, and substantial capital growth in many states and regions, especially in residential markets.
Increased Scrutiny and Compliance
As we near the introduction of the new $3 million super tax, which will take effect from 1 July 2025, questions arise about whether scrutiny in this space will intensify. Last month, we noted that the actual implications will only become apparent once the legislation is enacted. However, a press update released by the ATO in March 2024 indicates that they identified numerous funds that did not update their asset values annually, with some funds not updating these for three years. This has led to speculation that this scrutiny is, in fact, intensifying in the lead-up to the proposed new legislation.
SMSF trustees must stay informed and ensure they are meeting the ATO’s requirements for regular and accurate asset valuations. This not only helps to maintain compliance but also contributes to the effective management of the fund’s investments.
Accurate valuations leading up to July 2025 can also play a crucial role in your SMSF strategies with your SMSF advisor. Particularly, if your portfolio comprises largely illiquid assets, which can limit the trust’s ability to pay the additional 15% tax above the $3 million threshold, your advisor can help you navigate these challenges and ensure your fund remains compliant. This support from your advisor can provide reassurance and peace of mind during these uncertain times.
This is a hot topic within the SMSF industry, and it’s clear that the ATO is focused on accurate reporting on asset values. Regular valuations ensure SMSF trustees adhere to compliance requirements and are also beneficial for strategic planning in the lead-up to the new legislation taking effect. Staying informed and compliant is not just a matter of good practice, it's crucial to avoid penalties and supports the effective management and strategic planning of SMSF investments. The potential consequences of non-compliance underscore the urgency and importance of this topic.