Do properties held by SMSF need to be revalued every year?

Currently, there is no specific legislation that requires properties held by SMSF to be revalued every year. However, independent SMSF auditor will require the financial statements presented to be a fair and accurate representation of the assets of the fund. The auditor must be provided with evidence that the valuation of any property held by SMSF is valued accurately enough for them to sign off on their audit report.

The general rule of thumb used by the majority of SMSF auditors is that property investments held by a SMSF must be valued at least every three years.

There are some situations where property held by a SMSF must be revalued on a more frequent basis:

1. Commencement of Pension – a valuation from within 12 months prior to the commencement of the pension must be used.
2. Where the SMSF has in-house assets and the auditor needs to ensure that the 5% in-house asset ratio has not been exceeded.

The most important and common situation from the above is when a pension is commenced. If the members are still contributing to the fund and potentially starting a new pension each year, the trustees will be required to undertake a valuation each year. This is explained in the Tax Determination TD2000/29.

Who can undertake the valuation?

Valuations can be conducted by;

• Independent valuers
• Real estate agents
• Other unqualified persons(including trustees of the fund)

SMSF independent auditors generally will prefer a valuation from an independent party rather than the trustees of the SMSF. However, the auditor may accept the valuation from the trustees if the evidence is presented to show that the methodology used to prepare the valuation is objective, based on a reasonable process and all relevant factors have been considered.

For example, when determining the valuation of property, the following factors would be considered:

• The value of similar properties
•  How much was paid for the property
• Valuation for council rates purposes
• Independent appraisals
• Rental yield

For SMSFs that hold residential properties and the trustees wish to prepare their own valuation, they should obtain either a sales history report or a suburb sales history report from RP Data. These reports are cheaper than full independent valuation, and they can form the basis for the valuation of the SMSF property.

For commercial, industrial and more unique properties held by SMSF, valuation process will be complex than residential properties. Auditors may require more detailed valuation evidence than the case for residential properties. In these cases, an independent appraisal obtained every three years would be appropriate.

Do you have any questions on properties held by SMSF?

Please call Superhelp for more information on 1300 736 453.