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Focus on market value valuations for SMSF assets

The rules surrounding valuations for SMSFs have seen a range of changes over the past few years and it's vital that practitioners are across the various requirements to ensure their clients are legally protected.

Prior to 7 August 2012, trustees of SMSFs had no legal obligations to value their fund assets at market value, unless the fund was paying a pension and although SMSFs were encouraged to use market value for the purpose of preparing financial statements, it was not a legal requirement.

SIS Regulation 8.02B came into force on 7 August 2012, this amendment requires trustees to value each fund asset at its market value when preparing the annual financial statements of the fund.

Market value is defined in the SIS Act as being “the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:

i.) That the buyer and the seller dealt with each other at arm's length in relation to the sale
ii.) That the sale occurred after proper marketing of the asset;
iii.) That the buyer and the seller acted knowledgeably and prudentially in relation to the sale."

The ATO expects that valuations will be based on objective and supportable data. Valuations must take into account all relevant factors and considerations likely to affect the value of the assets. If the trustees provide their market valuation appraisal, appropriate documentation is required to substantiate the valuation.

Trustees of SMSFs that own nonstandard assets, such as fishing licenses, livestock, marina berths and taxi licences should be aware that obtaining market valuations can be problematic.

The auditor will require sufficient appropriate audit evidence that these assets have been recorded at market value. The auditor will require an understanding of the valuation methodology employed by the trustees and will be required to exercise professional judgement about the appropriateness of the valuation.

Valuation of assets is required to be considered annually; however, this doesn’t necessarily mean that trustees are required to obtain a new valuation each year. In some circumstances, there may have been no material movement in the valuation of an asset. The trustees can document such conclusions based on objective and supportable data.

The ATO has developed a detailed document covering most issues about the market value of assets within an SMSF. This document is a useful tool to assist SMSF trustees in understanding the ATO’s approach to market valuations.

Original Source: Here

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