With the introduction of Division 296 all but certain, SMSF Trustees should prepare for a shift in the compliance environment, particularly around the reporting and valuation of fund assets.
While Division 296 will target superannuation earnings on funds with balances over $3 million, Reliance Auditing Services expects all funds to face increased scrutiny, with the onus on Trustees to prove their balance doesn’t exceed the threshold.
Supporting, evidence-based documentation will be crucial.
Regulations allowing Trustees to make their own valuation assessments remain unchanged.
We have previously highlighted the importance of ensuring assets are valued correctly and we again warn that it will not be acceptable for Trustees to make an educated guess, or simply apply an inflationary increase to the value of assets.
Close enough will not be good enough.
In order to strengthen the credibility of their claims, Trustees should, from this financial year onwards, seek independent, market-based evidence as close as possible to June 30 each year.
Those carrying out a self-assessment should be able to produce extra information as required by us. We will not be able to accept anything less than evidence-based documentation, ideally supplied by an adequately qualified third party.
The new audit requirements for certain assets include:
Property
- Recent real estate listing with comparable sales data
- Third-party appraisals with comparable sales data
- Recent contract of sale between unrelated parties
- Valuation report prepared by a registered valuer
Loans
- Formal loan agreement
- Evidence of repayments
- Evidence highlighting the financial position of the borrower
- Adequate security over the loan (if applicable)
- Evidence of market value of underlying assets used as security
Unlisted Investments
- Annual financial statements with underlying assets reported at market value
- Net Asset Value (NAV) or Net Tangible Asset (NTA) statements
- Capital raisings within 12 months
- Evidence of arms-length dealings, if the parties are related
We recognise that asset valuation is complex, and not all supporting documentation will be able to be obtained. However, it’s important for Trustees to demonstrate they’ve done all they can to prove to the ATO that their balance does not exceed the $3 million threshold.
It’s worth noting that if a Trustee and/or qualified professionals are unable to obtain the documentation required, the ATO is likely to face the same challenges in obtaining the data.
In these cases, an auditor may be forced to lodge a contravention report – not because the Trustee has done anything wrong – but simply to notify the ATO that there is a lack of supporting documentation to substantiate the market valuation.
We are here to support you, but we need your support to ensure that compliance costs are kept at a minimal.
Regardless of whether your super balance sits under the $3 million threshold or not, it would be a risky assumption to think that the changed compliance landscape won’t impact you. If you need extra information or expert guidance, please reach out to our team.