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Ensuring compliance and accuracy: The essential role of SMSF property valuations


As the regulatory landscape evolves and property markets fluctuate, the importance of specialised support in securing the best outcomes for clients and maintaining compliance for SMSFs has become increasingly crucial.

Promoted by SMSF Property Valuations 5 minute read

SMSF Property Valuations specialises in assisting clients across Australia to accurately value their property assets – a necessity for annual financial reporting and compliance.

The firm collaborates closely with advisers, auditors, and trustees to ensure properties are evaluated correctly, considering the unique circumstances of each case. This process is vital, especially given the complexities in valuing unique properties or those with limited comparable market sales.

Mike Wilczynski, owner of SMSF Property Valuations, emphasised the challenges encountered when properties lack clear comparables in the market. He explains that SMSF Property Evaluations employs various methodologies to justify valuations, ensuring they meet the stringent requirements set by regulatory bodies.

“One of the most challenging aspects SMSFs face in meeting compliance when they have property assets is when there aren't many comparable sales to compare against,” he says.

NALI compliance essential

Some problems have arisen from the changes to non-arm’s length income (NALI) legislation, and Wilczynski says independent valuations are especially important where self-rental or unique property types, such as family farms or commercial real estate, are involved. This is because such situations often require a nuanced understanding of the market and regulatory requirements, underscoring the value of professional valuation services.

The firm’s approach to complex valuations involves direct engagement with clients to understand their specific needs and circumstances. This client-centric approach helps it craft tailored solutions that align with regulatory expectations and market realities.

For properties that present unusual challenges, the firm offers a money-back guarantee, reflecting its commitment to delivering accurate and compliant valuations.

“We like to work with clients and the advisers on those scenarios where it gets a little too tricky for auditors who know they are going to have to get some assistance because they don’t want their clients to fall foul of the new regulations,” he says.

“We're seeing a bit more activity from auditors requesting reports more regularly rather than the three-year standard. Some auditors are asking for reports every year and as property prices in Australia have been rising post-COVID, it’s understandable why they are asking for yearly reports.”

Getting the details right

Attention to detail is particularly crucial in navigating NALI rules, which can significantly impact an SMSF's tax position if not managed correctly. Wilczynski emphasised that SMSF Property Valuations prefers to work closely with clients to understand the basis for their income calculations. They then collaborate to incorporate these details into a final report that complies with all regulatory requirements.

Wilzcynski says the services of SMSF Property Valuations are not only pivotal for compliance but also play a crucial role in the broader SMSF ecosystem, which is now being heavily scrutinised by the ATO.

He says the Tax Office is now requiring more information rather than the ‘kerbside’ valuations that were common in previous years, and instead, SMSFs and their financial advisers now need to research more comparable sales to substantiate their valuations. Moreover, the regulator now requires more than just a letter from a real estate agent stating the price and the amount of rent that will be generated from a property.

“With the compliance burden that we have with SMSFs, auditors are having to clean up some of those old reports on behalf of the trustees, where the trustees might not always be fulfilling their duties and getting an up-to-date valuation,” he says.

Wilczynski says the nature of the SMSF sector means collaboration between accountants, advisers and auditors is extremely important in the management of a fund, and it is often accountants initiating valuation requests to bridge the gap between trustees and auditors.

“This collaboration is essential in navigating the complexities of SMSF property investments, ensuring that all stakeholders are aligned and informed,” he says.

“Accountants are often the ones caught in the middle, and that is originally how SMSF Property Valuations kicked off as I have a background in accounting and I wanted to create a cost-effective service that fits in the slot of doing the valuations for SMSF.”

SMSF Property Valuations works closely with auditors to develop a set of reports that are not only ATO compliant but also that clients are happy with concerning the level of information contained in them.

Wylzcynski says there are market valuation rules and trustees need to ensure that the assets of the fund are valued periodically to stay compliant in a fast-moving market.

“One of the biggest challenges for us is ensuring we've got enough data to substantiate the valuations and having enough of a spread, whether it's similar rentals, similar sales, which are within the ballpark of what we're trying to achieve for the client.”

It’s also imperative that data around titles is correct, especially when property such as farmland is split into allotments.

Keeping it simple

SMSF Property Valuations strives to make the process as simple as possible for clients with an online form that asks clients to input the expected values for the property and the expected rental returns to provide a starting point for the firm to begin its preliminary searches.

After establishing a clear understanding of the income calculations, client-centred conversations commence at SMSF Property Valuations. During these discussions, the team gathers information about the client's specific requirements regarding the valuation and, if applicable, the rental return. They also assess if any additional information is needed to ensure the report complies with regulatory standards.

Wilzcynski says when clients are renting a property there is often a disconnect between how much they believe the property may be worth to justify the rental income, and SMSF Property Valuations will do a comparison analysis as well as determine any unique aspects of the property to ensure it meets the regulations.

“This not only ensures compliance but also supports the strategic objectives of SMSFs, ultimately benefiting trustees and their beneficiaries,” he says.

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