SMSFs are required to value their assets at market value every financial year. This is easy enough for listed assets, such as equities, but it’s not so straightforward for unlisted assets like commercial property or collectables.
The Australian Taxation Office (ATO) defines market value as the following:
It is the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if all the following assumptions were made – that the:
- Buyer and the seller dealt with each other at arm's length in relation to the sale.
- Sale occurred after proper marketing of the asset.
- Buyer and the seller acted knowledgeably and prudentially in relation to the sale.
Why are valuations important?
Valuations are used for many things in the day-to-day running of an SMSF, not least of which is in preparing an SMSF’s annual financial statements. An accurate valuation is also required to make sure your SMSF has complied with the relevant superannuation laws around SMSFs acquiring assets from related parties, and investments made on an arms-length basis.
