Sunday, March 11 2018
The days of a lax approach to valuations are over.
While there is not always the need to employ a qualified independent valuer for each valuation, there are important circumstances where it is mandated, and others where it is recommended. Where one is not used then appropriate documentation needs to be kept of how valuations were determined. Back-of-the envelope or simply made-up valuations will not suffice.
Whilst in the old days the ATO had little it could do against SMSF trustees, the current penalty rules provide the ATO with much greater firepower. In particular, be careful in the valuation of assets for determination of whether a member is or is close to being in excess of the contribution rules. The ATO has signalled this is an area they will police in 2017-18.
When must a valuation occur?
A valuation is required in each of these situations:
How is a valuation undertaken?
In circumstances where a qualified independent valuer is not needed, there are a variety of ways that assets can be valued. The valuation though needs to be genuine and based on acceptable methods for valuing. There should always be records kept of how any valuation is done.
For a lot of SMSF assets such as shares and bank accounts, the means of valuation is easy, it will be the value of the bank account at the time of valuation or the price of share/unit at the time of valuation, which is publicly available.
When valuing a property, there are a number of ways that property could be valued such as:
Where a significant change has been made to the property, it is probably best to get a proper new valuation (eg renovations to the property that increase its value).
What happens if I get valuations wrong or don't do a valuation?
The old days of the ATO not having power to take action against trustees for issues with validation are over. The penalty regime provides specific penalties in relation to valuations.
For the trustee (or directors of a corporate trustee) they face a fine of 10 penalty units (about $2100) for each trustee for any failure to value an asset as required by the law.
Furthermore, s 103 of SIS provides an offence of strict liability for failing to keep proper accounting records, which includes the need to have a valuation for assets as at 30 June each year. The fine here is 50 penalty units (about $10,500) per trustee.
Furthermore, if the ATO determines that assets are undervalued for the purpose of the contribution cap rules, then it can take further action against the trustees as well as determine that they are in excess of the contribution caps with all that entails.