Find out why you must report your assets at market value.
Members of a self-managed super fund should be aware that all of your assets are required to be valued at market value every financial year in your superannuation accounts. This is also a requirement under super regulations as SIS Regulation 8.02B stipulates that assets must be valued at ‘market value’. Further reasons why reporting assets at market value is important is because:
- The total superannuation balance needs to be accurate for each member to determine their eligibility for non-concessional contributions with the $1.6 million cap.
- Where a member is drawing a pension – minimum pensions are determined by the 1 July balance each year.
It is a straight forward process to value assets when it comes to shares in listed companies/managed funds that have a known listed value however it can be quite difficult to ascertain the unlisted investments that a fund may have. In some instances, it actually may not be possible to ascertain a market value just because of the nature of the investment.
Some examples of unlisted assets that a fund may have include: property, shares in an unlisted trust or company where the trust/company has intangible assets and loans to unrelated parties both secured and unsecured.
Providing appropriate evidence
It is the trustee’s responsibility to provide the appropriate audit evidence to the auditor of the fund so the auditor can conclude that the investment is recorded at market value.
If the auditor does not have the appropriate evidence to be satisfied that the asset is recorded at market value then they would qualify the audit report.
In the past there may not have been adverse consequences of a qualification (a qualified audit report would be issued to the trustees and that’s it) however the auditor must now report this event to the ATO under a contravention report where the asset is material.
When an auditor contravention report is lodged to the ATO, it is unclear whether any further action will be taken but as a minimum it would increase the risk profile of the fund from the ATO’s perspective.
This means it is important that as much information as possible on the unlisted investment is provided to enable the auditor to verify the market value. Information needed by the auditor will differ depending on what the circumstance/case is.
Some information that may be requested is:
1. Loans to unrelated parties
- A signed loan agreement which spells out the terms of the agreement.
- Information of the borrower and the ability of the borrower to repay (where the loan is unsecured).
- A set of financials from the borrower where the loan amount matches against the super fund’s financial statements (applicable where the borrower is not an individual).
- Seeing evidence that interest (and principal) is being received into the super fund bank account in accordance with the loan agreement.
- If the loan is secured, the auditor may do a title search of the asset that is subject to the security to confirm details.
2. Trusts/companies with intangible assets/property developments/assets that are hard to value
If you are finding it hard to value your assets, these factors will help to determine if you can ascertain the market value:
- A set of financials and tax return for the trust/company.
- Whether the financials have assets recorded at market value and if so – they have been audited.
- Directors declaration of market value per share or statements issued from the company that indicates the market value.
- Whether there has been trading of the shares around the reporting date between two independent parties.
- Information on the company and whether similar investments that the company has issued has had their full value redeemed.
3. Trusts/companies with just rented property and/or borrowing
- A set of financials and tax return for the trust/company.
- Evidence of the property market value (and title search confirming property is in the correct name).
- If there is a large borrowing – the 30 June bank statement confirming the balance is also required.
If you would like to know more about unlisted assets or have queries in relation to your Superannuation, please contact one of our Superannuation Specialists today. Alternatively, you can complete your details below and we’ll be in touch or give us a call on (03) 9835 8200.
