Valuations for SMSF benefits, member exits and wind-ups

Which dates need a market value for an SMSF pension?

Three dates, according to the ATO's guide to valuing SMSF assets. The value is the market value of the assets that support the pension or the member's account.

Anyone can do the valuation as long as it rests on objective and supportable data, and the ATO suggests considering a qualified independent valuer if it is likely to be complex. Cash, managed funds and listed securities are easy to value. Private company shares and unit trust units are not. If a significant event has moved an asset's value, such as a natural disaster, market volatility or a change in the asset's character, the ATO says to get a new valuation or alternative evidence before using it for a pension.

When is a reasonable estimate enough?

Only in limited cases, and only for the transfer balance cap. The ATO accepts a reasonable estimate of a pension's value when a member starts a pension on 1 July but a full valuation of the supporting assets is not possible by 28 October, or when a pension starts part way through the year. Its example is a fund that holds private company shares.

The limits matter. The ATO says a fund cannot rely on a reasonable estimate when preparing its financial accounts or working out its entitlement to exempt current pension income. An estimate helps meet a reporting deadline. It does not replace a valuation for the accounts.

What changes when a benefit is paid in specie?

An in specie payment gives the member an asset instead of cash. The ATO's commutation guidance says a lump sum can be paid by transferring an asset, and that a full commutation of a pension can be paid in specie if the fund's governing rules permit. The trustee must also consider the CGT consequences of transferring an asset instead of cash.

The asset still needs a value, because it replaces cash in the member's benefit. That value has to hold up in the fund's accounts, in the member's closing balance and in any CGT event. The ATO says it will generally accept a valuation where there is no evidence a different value was used for the corresponding CGT event, so one supportable value should serve all three.

We value private company shares, unit trust units and business interests as at the transfer date you give us. We do not value collectables. For those, the ATO says a disposal to a related party, and a member is one, must be at market price determined by a qualified independent valuer, and it sets out the dates that apply.

What does a valuation add when a member leaves or rolls out?

It fixes the value of the fund's unlisted assets on the day the member's benefit is worked out. A member's balance is a share of the fund's assets, so a private company or unit trust with no price on a statement has to be valued before the balance is right, both for the member leaving and for the members who stay.

If the member is being paid a pension, the ATO says each commutation must be reported as a transfer balance cap event. Whether, when and how a member exits is a decision for the trustees with their adviser. We value the assets and do not advise on that decision.

What valuations does an SMSF wind-up involve?

Most of them are for assets with no ready price. The ATO's wind-up guide tells trustees to check whether the trust deed lets them transfer assets to members instead of selling them, to consider CGT and stamp duty, and to document each sale, including how the asset was valued, the buyer, the date and the amount.

The ATO also says trustees must work out each member's entitlement before calculating closing account balances and preparing the final return, and that the final audit is completed by an approved SMSF auditor. A valuation of the unlisted assets at the wind-up date gives the trustees, the accountant and the auditor one supportable set of figures to work from.

How each member's benefit leaves the fund depends on the member. The ATO says a member who meets a condition of release can take cash or roll over to another complying fund, and a member who does not must be rolled over. Either way, the closing balance rests on the asset values at the wind-up date.

How do you get a valuation for a benefit, exit or wind-up?

Tell us the transaction date, the assets involved and whether they are going to a member in specie. Send the fund's accounts, the company's or trust's financial statements and its constitution or trust deed through the private upload link on your matter, never by email. Trustees and their advisers decide whether and when to pay a benefit or wind up. We value the assets. See also 30 June market values and related-party transfers.

Investment entity: $995 + GST. Trading business interest, turnover under $2 million: $1,495 + GST; $2 million to $10 million: $2,495 + GST; over $10 million: $3,495 + GST. We confirm the fee in writing before we start. No hourly billing.