If a Self-Managed Superannuation Fund (SMSF) owns property, obtaining an appropriate property valuation is an important part of every audit. However, one question we are often asked is how long that valuation remains valid.
The answer depends on whether the previous valuation still reflects the property’s current market value.
Property values aren’t static
The ATO expects SMSF assets to be reported at market value each financial year. While that doesn’t mean trustees need to commission a new independent valuation every year, they do need to consider whether the existing evidence is still reliable.
If nothing significant has changed and market conditions have remained relatively stable, an existing valuation may still provide an appropriate starting point when supported by more recent market evidence.
However, where circumstances have changed, further evidence is often required.
When should trustees obtain updated evidence?
Auditors are more likely to request updated valuation evidence where:
- There have been significant movements in the local property market
- The property has been substantially renovated or improved
- The property’s condition has materially changed
- Zoning or development potential has changed
- The valuation is several years old
- The property represents a significant proportion of the fund’s assets.
In these situations, relying solely on an older valuation may no longer provide sufficient evidence that the property is recorded at market value.
What auditors consider
During an audit, the focus isn’t simply on the date of the valuation. Auditors also consider whether the evidence remains reasonable in light of current market conditions.
For example, if an industrial property was valued two years ago but comparable properties have since experienced substantial price growth, additional evidence may be needed to support the reported value.
Likewise, if major improvements have been made to the property, the previous valuation may no longer reflect its current market value.
Updated evidence doesn’t always mean a formal valuation
Updated evidence doesn’t necessarily mean obtaining a full valuation from a certified valuer. Depending on the circumstances, appropriate evidence may include recent sales of comparable properties, an updated appraisal from a real estate professional or other objective information that supports the property’s current market value.
If you’re unsure what type of evidence is generally acceptable, read our article, SMSF property valuations: Obtain the valuation support now for year-end audits, which outlines the ATO’s expectations and the types of valuation support auditors commonly rely on.
Planning ahead helps avoid audit delays
Property valuations are one of the more common areas where auditors request additional information. Reviewing valuation evidence before year end, rather than waiting until the audit has commenced, can help trustees and accountants identify whether updated information is needed.
If you’re unsure whether an existing property valuation is still appropriate, or what evidence is likely to satisfy audit requirements, get in touch the Audit your Superfund team.