The ATO has made significant investments in its analytics capability in recent years, leaning heavily on data to identify risky behaviour and trends in non-compliance.
As reported by Intello earlier this year, high rates of illegal early access became a critical concern in the SMSF sector. By the time the ATO had processed the numbers, more than half a billion dollars had been drained from Australia’s superannuation system.
Now, the ATO’s attention has been drawn to asset valuation and what appears to be a significant breach of mandatory annual ‘market valuations’ rules.
The ATO has analysed the data and found that tens of thousands of funds have maintained the same value on SMSF assets across multiple annual returns. In fact, around 16,500 funds have reported an identical value on certain asset classes for three or more years. The ATO has classified this as a “high risk category” and is of particular concern.
The ATO has identified over 1,000 SMSF auditors linked to this high-risk group. Not one auditor contravention report (ACR) was lodged by this cohort, which would flag a potential breach of the market valuation rules.
In response to findings, the ATO is targeting trustees and auditors associated with funds that may be in breach of asset valuation requirements. They’ve warned individuals about the risk of breach, that their fund is being closely monitored, and that the ATO will scrutinise their approach in the next annual return.
What Are Rules Surrounding SMSF Asset Valuations?
Trustees must ensure their SMSF’s assets are reported at market value when preparing their financial statements and annual returns. This includes assets such as residential and commercial property, unlisted companies, and unlisted trust investments.
Fund assets must be valued at market value when preparing the fund’s accounts and statements. The valuation should be based on objective and supportable data. Any relevant documentation requested by your auditor must also be provided.
SMSF auditors are responsible for checking the valuation of fund assets as part of the annual SMSF audit.
If asset valuations fail to meet the requirements, the fund and members may have additional taxes to pay. The ATO may also decide to apply administrative penalties.
Intello SMSF Auditing Processes Updated to Align with Strict ATO Rules
Meanwhile, the SMSF professionals at Intello have revised auditing procedures to prevent any breach of market valuation rules.
Rather than obtaining valuations for non-standard assets every three years, which is standard industry practice, Intello auditors now require all fund assets to be valued annually at market value in the fund’s financial statements.
Numerous online valuation providers offer competitive prices to do this for residential property. There’s also free information available on real estate websites. Obtaining updated valuations annually for residential property can be done at minimal cost and time.
However, a desktop valuation may not be relevant for commercial property and farming land for some properties since the valuation can’t be completed remotely because the property must be inspected. If there is no intention to organise an updated valuation on a property independently valued the year prior, trustees may provide updated figures and evidence via the net capitalisation method or comparable sales method. Where the trustees use the net capitalisation method or comparable sales method, a working paper needs to be provided that shows the calculations. The auditor will only accept these two methods for two years before obtaining a new independent valuation from a qualified valuer or real estate agent.
To ensure your SMSF meets the ATO’s stringent market valuation rules and avoids potential breaches, contact our experienced team today at admin@intello.com.au. We’re here to guide you through the updated processes and help you stay compliant with the latest regulations. Don’t leave your SMSF’s compliance to chance—reach out now and let us support your auditing needs.