There seems to be a recurring misconception about SMSF property valuations being needed every three years, whereas in fact, this is no longer the case, as shown by Regulation 8.02B. In our article 'Asset Valuations Guidelines For SMSF', we briefly discussed asset property value, but we'll go into more detail to grasp why, how, and when.

What you will find in this blog:

Why is it necessary to reevaluate investments in SMSF property?

There are four main reasons why owners of self-managed superannuation funds (SMSFs) should revalue the property they own:

• Pension

Finding out the value of the investments that support a pension is needed to figure out the minimum and highest amounts that can be paid out when an SMSF starts a pension. This has to be done at least 12 months before the salary is due to be paid out.

Performance: Investment performance is very important for SMSF members and managers. This performance must take into account any changes in the value of real estate.

• Assets kept in-house

An SMSF can only put up to 5% of its assets into "in-house" assets. To get the right answer for this percentage, all of the fund's holdings need to be valued at their fair market value.

• Caps on contributions

To get a correct picture of a person's total pension amount, all assets in the SMSF need to be valued at what they are worth on the market. For someone to be able to make non-concessional payments, their total superannuation balance (TSB) had to be less than $1.7 million at the end of the previous financial year on June 30, 2017.

Starting July 1, 2018, members whose total super balance was less than $500,000 on June 30, 2017, can make more than the general concessional contribution cap and make extra concessional contributions to make up for any amounts they don't use. 2020FY is the first year that they will be able to make extra contributions. A charitable gift that hasn't been used can be rolled over for up to 5 years.

When is the right time to get your SMSF property valued?

If members are commencing a new pension each year and continuing to make contributions to the fund, yearly valuations are obligatory according to Tax Determination TD 2000/29.

Actually, however, every year at the conclusion of the fiscal year on June 30th, properties are required to be re-evaluated at market value.

Who can value your asset?

The managers may ask a skilled independent valuer (external valuer) to help them figure out the fair market value of a large piece of real estate that is part of the fund's assets. Regulation 8.02B of the SISR doesn't require real estate to be valued by an outside party every year, but managers can do so if they want to. The trustees are in charge of making the yearly statements and reports for the fund. They have to decide if the external estimate can be used to support the value of the fund's real estate.

Otherwise, trustees shouldn't trust an outside valuation if it's become significantly wrong or if the property's value has changed a lot since the last valuation, for example because of a change in the market or an event like a natural disaster or a global disease like COVID-19. Instead, they should get a new appraisal or other proof that the appraisal is correct.

Getting an outside appraisal isn't the only way to prove how much a property is worth on the market. Here are some others:

1. Getting a real estate agent's opinion on the property, sometimes done while standing on the street (a kerbside evaluation).
2. If the acquisition is recent and the property has not undergone any major changes that might affect its value, a contract of sale can be provided.
3. Offering up-to-date sales information for similar homes.
4. Sending out a notification of rates if it agrees with other proof of value.
5. It is only admissible to use the net income yield of commercial properties in conjunction with other types of proof and to ensure that the tenants are unrelated.

A real estate valuer is someone who is registered or licenced to do real estate valuations in line with the legislation of the state, territory, or Commonwealth in which the property is situated.

Any valuer operating in Queensland must first register with the Valuers Registration Board of Queensland, and only a qualified land valuer may undertake land valuations in Western Australia.

Valuers must be Certified Practising Valuers or Certified Professional Valuers, as determined by the Australian Property Institute or the Australian Valuers Institute. The Certified Practising Valuer (RICS), Chartered Valuation Surveyor (API), and Certified Practising Valuer (AVI) are all institutions that provide appropriate certificates.

For reporting years starting on or after June 30, 2013, Regulation 8.02B requires that all assets be assessed at market value, which implies that property valuations must be based on objective and supporting facts each year.

Contact OM Financials

We understand that reliable asset assessments for SMSFs are crucial to the success and compliance of your fund. It might be challenging to stay up with the standards and make sure your SMSF is fulfilling its commitments due to the ongoing growth of the ATO's anti-avoidance laws and regulations.

To make sure your SMSF is running well and in compliance, OM Financials experts  will provide you with the correct guidance. To learn more about how we may guide you with the valuation of your SMSF property, contact us now.

To learn more, book a discovery call today!!