SMSF property valuation is particularly important where property represents a substantial proportion of the assets held by a Self Managed Superannuation Fund (SMSF). Establishing a supportable market value is therefore important for financial reporting, audit and, in some circumstances, property transactions involving the fund.
However, an important distinction is often overlooked: while SMSF assets must be valued at market value each income year for the fund's financial statements and accounts, this does not necessarily mean that a formal independent property valuation must be obtained every year.
This guide explains the role of property valuation within an SMSF, when an independent valuation may be appropriate, and what trustees and their professional advisers should consider when establishing the market value of SMSF property.
The Role of Property Valuation in an SMSF
SMSF trustees are required to value fund assets at market value when preparing the fund's financial statements and accounts each income year. For property assets, the valuation should be based on objective and supportable evidence.
The appropriate valuation evidence will depend on the property and the circumstances of the fund. A formal valuation by a qualified independent valuer is not necessarily required for every SMSF property every year. For current SMSF valuation requirements, refer to the Australian Taxation Office (ATO).
However, an independent property valuation may provide valuable supporting evidence where the property represents a significant proportion of the fund's assets, the property is complex or unusual, market evidence is limited, there has been a material change affecting its value, or greater valuation certainty is required.
When Might an Independent SMSF Property Valuation Be Appropriate?
An independent property valuation may be appropriate where trustees, auditors or professional advisers require reliable evidence of market value. Circumstances may include:
The circumstances of each SMSF are different. Trustees should confirm the fund's specific valuation and compliance requirements with their auditor, accountant or other appropriately qualified adviser.
How Is an SMSF Property Valued?
A professional property valuation involves more than applying a general suburb growth rate or relying on an automated property estimate. The valuer considers the characteristics of the particular property together with relevant market evidence.
Depending on the property, this may include:
The valuation report should explain the relevant property information, market evidence, valuation methodology and reasoning supporting the assessed market value as at the specified valuation date.
What Is Market Value?
For SMSF purposes, property assets are required to be valued at market value. In broad terms, this reflects the amount that could reasonably be expected to be received if the property were sold in an arm's length transaction between appropriately informed and willing parties.
Market value is not necessarily the same as the property's purchase price, an owner's estimate, an asking price or an automated property estimate. It should reflect the property and relevant market conditions as at the specified valuation date.
An independent property valuation provides a documented opinion of market value based on relevant property information, market evidence and appropriate valuation methodology.
When Might an SMSF Property Value Change Materially?
Property values can change over time due to movements in the broader market as well as factors affecting the individual property. A previous valuation or assessment may therefore become less reliable where circumstances have materially changed.
Factors that may warrant reconsideration of a property's market value include:
Where a material change has occurred, trustees and their professional advisers should consider whether updated market evidence or an independent valuation is appropriate.
SMSF Property Valuation FAQs
Does an SMSF property need to be valued every year?
SMSF assets must be valued at market value each income year for the fund's financial statements and accounts. However, this does not necessarily mean that a new formal independent property valuation must be commissioned every year. The appropriate valuation evidence will depend on the property, available market evidence and circumstances of the fund.
Does an SMSF property valuation have to be undertaken by a Certified Practising Valuer?
A formal valuation by a Certified Practising Valuer is not necessarily required for every SMSF property in every year. However, an independent professional valuation may be appropriate where the property represents a significant proportion of the fund's assets, the valuation is complex, reliable market evidence is limited, or stronger independent evidence of market value is required.
Can ValuConsult provide a retrospective SMSF property valuation?
Yes. Where market value is required as at an earlier date, ValuConsult can undertake a retrospective property valuation, subject to the availability of sufficient property information and historical market evidence.
Can commercial and industrial properties held by an SMSF be valued?
Yes. ValuConsult undertakes SMSF valuations of residential, commercial, industrial, retail and other property types. The valuation approach and market evidence considered will depend on the nature of the property and the purpose of the valuation.
When Should You Consider Professional Valuation Advice?
Whether an independent property valuation is appropriate will depend on the nature of the property, available market evidence and the circumstances of the SMSF. A professional valuation may be particularly useful where the property represents a significant fund asset, the valuation is complex, market conditions have materially changed, or independent evidence of market value is required for a transaction, financial reporting or audit support.
Where independent evidence of market value is required, ValuConsult provides SMSF property valuation services across Melbourne and Victoria for residential, commercial, industrial, retail and other property types.
This guide provides general information about property valuation and should not be relied upon as taxation, superannuation, financial or legal advice. SMSF trustees should obtain advice appropriate to their particular circumstances.