• Jun 8, 2024

Have SMSF trustees or managing directors consider the right way of asset reporting for superannuation purposes? Here is an important ATO valuation guidelines for SMSF.

Complying ATO valuation standards while reporting SMSF

This blog post is designed by Asia Valuation to help you as a self-managed super fund (SMSF) trustee when valuing assets for superannuation purposes. Every trustee must ensure the fund’s investment strategy is reviewed regularly and takes into account the retirement goals of SMSF members.

Market Valuation for Tax Purposes

According to the Guidelines of ATO, there is a certain definition of market valuation for tax purposes. It includes information on what market value means for tax purposes along with the evidence and processes that ATO generally expect to see to support a valuation.

ATO use the term ‘asset’ in this Guide for anything that is being valued, including:

•real property

•plant and equipment

•businesses

•goodwill

•shares

•units

•liabilities

•benefits provided, and

•financial instruments.

If ATO were undertake a market valuation review, the onus for offering a replicable and defensible valuation report is referring to and retaining all relevant records, thoroughly documenting all aspects of the valuation process and choosing the most appropriate inputs and recognized valuation methodology. Such methodology can include direct comparison, income approach and cost approach that a professional valuer think they are appropriate for the asset classes.

Market Value Definition for Tax Purposes

The definition of ‘market value‘ in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) does not provide a meaning to be applied in all contexts. Unless market value is specially defined or qualified in a particular provision, it has an ordinary meaning for which the principles in case law and the International Valuation Standards Council (IVSC) are principally relevant.

Tax and superannuation law requiring a market value will frame the parameters of the valuation exercise on the asset for valuation and the valuation assessment date. The law may also contain stipulations on the appropriate valuation method and assumptions.

If you want advice tailored to a particular set of facts to provide you with more certainty, you can apply for a private ruling on an asset’s market value providing it is relevant to a question about the tax law. We cannot provide a private ruling to determine or confirm:•the appropriateness of a valuation methodology, or•the market value applicable for a future event.

Documenting the requirements of the relevant tax and superannuation provisions, and having considered the relevant case law and ATO guidance (particularly where they relate to the calculation of market value), can save considerable time and effort in the event of a review or dispute.

Judicial Meaning

The High Court, in Spencer v Commonwealth of Australia [1907] HCA 82, identified principles to be followed in determining the ordinary meaning of market value.

In valuing an asset, a valuer is to assume a market with hypothetical buyers and sellers and the ‘market value’, being the price negotiated between the buyer and seller to achieve a notional sale in the hypothetical market.

The notional sale is assumed to be made after voluntary bargaining between a willing but not anxious seller and purchaser rather than a forced sale and with both being fully informed about the advantages and disadvantages of the asset being valued and aware of the current market conditions.

Fair Value is not the same as market value for tax purposes

‘Fair value’ is specifically used for financial reporting purposes. It is not always an identical concept to market value, although it is usually defined in a similar way.

Australian Accounting Standard AASB 13 Fair Value Measurement defines fair value as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date’.

Relevant Professional who is authorized to conduct valuation assessment

A person who is registered or licenced to carry out real property valuations under the relevant State, Territory or Commonwealth legislation.

In Queensland, valuers must be registered by the Valuers Registration Board of Queensland.

In Western Australia, land valuations must be undertaken by a licenced land valuer.

For the first approach, an approved valuation must be undertaken by a professional valuer who is any of the following:

•person registered or licensed to carry out real property valuations under a Commonwealth, state or territory law

•a person who runs a business as a valuer in a state or territory where they are not required to be licensed or registered

•a person who is a member of the – Australian Valuers Institute (Certified Property Valuer) – Royal Institute of Chartered Surveyors (RICS), (Registered Valuer)-Australian Property Institute (Certified Practising Valuer).