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Superannuation


Have you prepared your annual SMSF property valuation?



By Nadine Hill, Principal

28 October 2024

Nadine Hill, Principal at Brentnalls SA
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The ATO has identified 16,500 self-managed super funds (SMSFs) with the same property values in their SMSF Annual Return. The ATO is concerned that trustees are not meeting their legal requirement, under regulation 8.02B of the Superannuation Industry (Supervision) Regulations (SISR), to value and report their assets at market value every year. The ATO is increasingly receiving and analysing data to assess risks across the Australian tax system, and if market values are not updated annually, you may attract the gaze of the ATO. The recent interest from the ATO shows that the annual valuing of assets in SMSFs is a requirement.


Our auditors have advised that a property valuation is valid within 6 months of 30 June. For example, valuations dated between January 2024 and December 2024 can be used for the financial year ending 30 June 2024.


Acceptable valuation methods:

  • Comparable sales
    Compare your property with at least three similar recent sales. This method helps establish a market value based on sales data of comparable properties. 
  • Annual growth rate
    This method involves applying a growth rate of the local area to the prior year's market value. Ensure you record supporting evidence to support the growth rate calculated. 
  • Capitalisation of net income
    Only appropriate where tenants are unrelated. This method involves collecting evidence to support the capitalisation percentage of net income of the local area.


Recommended options depending on your SMSFs property:

Residential property

  1. We can request an independent third-party valuation through BGL property services at a cost of $89 + GST.
  2. The Trustees may prepare a market valuation using one of the three valuation methods above, but need to ensure they have sufficient supporting evidence. This can only be done for a 2-year period before a new independent third-party valuation is required.
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Commercial property

  1. If the property is in South Australia, we can request an independent third-party valuation for you from a commercial property valuer starting at $660 + GST.
  2. If the property is located outside of South Australia, you may obtain an independent third-party valuation from a local commercial real estate agent or qualified valuer.
  3. The Trustees may prepare a market valuation using one of the three valuation methods above, but need to ensure they have sufficient supporting evidence. This can only be done for a 2-year period before a new independent third-party valuation is required.


Farmland

  1. You may obtain an independent third-party valuation from a local commercial real estate agent or qualified valuer.
  2. The Trustees may prepare a market valuation by using one of the three methods listed above, but need to ensure they have sufficient supporting evidence. You may use an aid such as the Rural Bank Farmland Values 2024 Report to form part of your evidence. This can only be done for a 2-year period before a new independent third-party valuation is required.


Vacant land

  1. Council Rates valuation is sufficient supporting evidence of the current market value of the land.

Closing remarks

With the ATO's increased scrutiny and emphasis on yearly valuations, they are encouraging all trustees to ensure that their property values are up-to-date and reflective of the current market conditions. Utilising the recommended 

valuation methods, and obtaining independent third-party valuations where appropriate, will help you meet these obligations effectively. This is not all bad, regularly updating your property valuations helps keep your SMSF in good shape and reduces the chance of issues arising.


If you would like more information, please contact your Brentnalls SA advisor.

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Discuss Further?

If you would like to discuss, please get in touch.

Disclaimer

The information provided in this article does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.

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