Back to

Search & contents
Glossary
Forms
Contact us
Legal database
Privacy statement

Printer-friendly version
of this document

Feedback
Did this information satisfy your requirements?

Yes

No
Unsure

Comments:

Apologies, no replies to feedback.

Table
Of Contents

Australian Taxation Office Superannuation Circular 2003/1 –
Valuation of assets

Download
portable document format (pdf) version

Introduction

The Australian Taxation Office (ATO) intends that self
managed superannuation funds should use market values for all
valuation purposes. This includes valuations for determining the
purchase price of a pension and the use of market value accounting
for all financial statements.

The purpose of this Circular is to provide the basis
for conducting these valuations.

Financial
reporting

Australian Accounting Standard AAS 25 which applies to
reporting entities requires superannuation funds to value their
assets at their net market value as at the reporting date.
However, most self managed superannuation funds can appropriately
be classified as non-reporting entities and therefore not required
to comply with this standard.

Regardless of this, the ATO’s position is that self
managed superannuation funds should use market value reporting for
their financial statements, even where the auditor has determined
that the fund is a non-reporting entity.

This view is shared by the Australian Prudential
Regulation Authority (APRA) and is set out in their Addendum to
Circular No. IV.A.4.

Benefits of market value financial reporting

By using market value reporting, self managed
superannuation funds will ensure that members' benefits, as
reported in the annual statements, will reflect all market value
movements of the reporting period.

This consistent accounting approach by all
superannuation funds will assist trustees with the investment
decisions of the fund by allowing for the comparison of financial
statements from subsequent periods and with other superannuation
funds. It will also assist trustees to determine whether the mix
of investments in the fund is in accordance with the investment
strategy.

Market value reporting will also allow trustees to
easily determine the resources that the fund has available for
payment of benefits. For example, if a member was to leave the
fund the trustees could easily determine the member’s account
balance as at the reporting date.

Purchase price of a pension

Taxation Determination TD 2000/29 provides the method
of calculating the capital value of purchased pensions not payable
for life, which includes allocated pensions, for the purposes of
the reasonable benefit limits.

The formula for this calculation incorporates the
purchase price of the pension. Where an accumulation fund has
underlying assets that commence to provide for the pension, the
assets must be valued at their net market value on the
commencement day of the pension. It is this value that must be
reported to the ATO as the purchase price of the pension.

Market value definition

Sub-section 10(1) of the Superannuation Industry
(Supervision) Act 1993 (SISA) defines market value as "the
amount that a willing buyer of the asset could reasonably be
expected to pay to acquire the asset from a willing seller if the
following assumptions were made:

a. that the buyer and the seller dealt with
each other at arm's length in relation to the sale;

b. that the sale occurred after proper
marketing of the asset;

c. that the buyer and the seller acted
knowledgeably and prudentially in relation to the sale".

Similarly, net market value is defined in AAS 25 as
"the amount which could be expected to be received from the
disposal of an asset in an orderly market after deducting costs
expected to be incurred in realising the proceeds of such a
disposal".

Who can determine the market value of an
asset?

It is not intended that obtaining a market valuation
should be onerous or expensive for the trustees.

Depending on the situation, a market valuation may be
undertaken by either a qualified valuer or a person without formal
qualifications which includes the trustees of the fund. In any
case, the person who conducts the valuation must base their
valuation on reasonably objective and supportable data.

Use of a qualified valuer should be considered where
the value of the asset represents a significant proportion of the
fund's value or where the nature of the asset indicates that the
valuation is likely to be complex or difficult.

Method of determining market value

Regardless of who conducts the valuation the trustees
must be able to demonstrate that the valuation has been arrived at
using a ‘reasonable’ process. Generally, a valuation can be
considered as ‘reasonable’ where it:

takes into account all relevant factors and considerations
likely to affect the value of the asset;

has been undertaken in good faith;

results from a rational and reasoned process; and

is capable of explanation to a third party.

For example, when valuing property assets relevant
factors and considerations may include factors such as, but not
limited to:

the value of similar properties;

the amount that was paid for the property;

valuations for council rate purposes;

independent appraisals.

The trustees must keep appropriate records of how the
valuations were determined, so they can be readily verified if
required. Valuations prepared by suitably qualified and
independent valuers are less likely to be challenged.

When to conduct valuations

For the purpose of financial reporting, valuations
should be conducted at the funds reporting date on an annual
basis, which in most cases will be 30 June.

For the purposes of calculating the purchase price of
a pension and the level of ‘in house’ assets the ATO will
accept the most recent valuation obtained within the last 12
months of the commencement day of the pension, including
valuations obtained for other statutory purposes.

Table
Of Contents

For other important information, go to:

self
managed superannuation funds

ATO main page

Feedback
about this site