Why Your Self-Managed Super Fund (SMSF) Might Require a Licenced Valuer

By the resi financial blog team, 16 June 2014

Using a licenced valuer for your SMSF self managed super fund

Self Managed Super Funds (SMSF) has become very popular in recent times. These funds differ from conventional funds in that the members of an SMSF are its trustees, and they run the fund for their own benefit. Apart from this greater control that these funds offer, SMSF funds offers a host of other advantages. These funds make it possible to borrow safely through non-recourse loans. It also offers tax benefits, such as only 15 percent tax on net rental income, and zero capital gains tax for investors above 60 years of age.

However, just because SMSF are self-managed, it does not mean that it is free from rules and regulations, and that it is free from interference by outside parties. 

Setting up and managing a SMSF requires some skills and much time. The Australian Tax Office (ATO) has laid down laws and regulations to govern such funds, and these regulations stipulate that the fund should have a trust deed, laid down governing rules for operations, and an investment strategy. These funds can be used only to offer retirement benefits, and the law regulates payment of benefits. All SMSF funds have to lodge an annual return with the ATO, and this return would be the result of the annual financial and compliance audit. Unless the fund is set up and managed correctly, in compliance with these laws and regulations, it will not be eligible for tax concessions, and the trustees may become liable to face sanctions.

Since 1 July 2012, it has become mandatory for SMSF funds to value its assets at market value. The annual audit needs to make a structured assessment of the market value of the assets of the funds, as on the reporting date of the fund, usually June 30. 

While it is easy and straightforward to determine the market value of many assets, such as fixed income securities, shares, cash, and term deposits, establishing the market value of other assets, such as art works, collectables, and real estate is difficult, and may require the services of a qualified licensed valuer. 

Property assets usually constitute a key component of SMSF funds, and its valuation has a significant impact on the returns of the members. The ATO does not specify any hard and fast guidelines when it comes to determining the market value of property assets, but rather suggests that the value of the property be assessed on the basis of:

  • The value of similar properties.
  • The amount that a willing buyer would pay for the property in an arm’s length market and when the property is marketed properly.
  • Net income yields in case of commercial property.

The underlying guideline is that the valuation be conducted in good faith, through an objective rational process, and that the valuation be backed by supporting data. 

The laws require valuation by a qualified independent valuer when the asset is acquired by the SMSF, when it is disposed of to a related party, if the value of the asset represents a significant proportion of the fund's value, or if the nature of the asset makes valuation a complex or difficult exercise. The approved SMSF auditor makes an independent valuation of the asset as part of the fund's audit process. 

It is however not necessary to make a formal valuation through a licensed or approved property valuer every year. The formal valuation of real estate and property assets by a licensed valuer is required only in such years when a significant event during the year affects previous valuation. This significant event could be:

  • Something that involves the property directly, such as market volatility, natural disaster, macroeconomic events, or changes to the character of the asset.
  • Something that involve the fund in general, such as a member going into pension mode. 

Though there is no rule to this effect, it is a good practice to have a formal valuation by a qualified valuer at least once every three years.

Although it is possible for the trustee to complete the valuation exercise themselves in normal circumstances, it is always a good idea to entrust the valuation to a qualified and licensed valuer. A valuer is deemed as qualified either by holding formal valuation qualifications, or by being considered to have specific knowledge and experience by the respective professional community. The knowledge and experience is, in most cases, demonstrated by being a current member of a relevant professional body or trade association. The ATO may review the SMSF valuation and require the trustee to submit evidence for the valuation figures, as part of the compliance procedures. The ATO is less likely to challenge valuations prepared by licensed valuers. 

Apart from property, a licensed valuer is also required for valuing assets such as art works, jewellery, coins, motor vehicles, boats, and memorabilia, for which there is no clear cut reference price.


Rowan Hemsley is a Licensed Property Valuer and the director of Qwest Valuations, a boutique property valuation and consultancy firm in Perth, Western Australia. Qwest Valuations specialise in independent and impartial property advice for SMSF clients. Rowan has many years of experience in the valuation industry and possesses an intimate knowledge of the Perth property market. You can contact Rowan on Google+.


Categories: Qwest Valuations, Self-Managed Super Funds, SMSF