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DIY super funds get new rules for valuing assets

feature-funds-200Superannuation regulations, specifically the Superannuation Industry (Supervision) Regulations, have been amended, with effect from August 7, 2012, to require trustees of self-managed super funds (SMSFs) to value the assets of the fund at "market value" for reporting purposes.

The amendments also require trustees to:

  • consider whether to hold a contract of insurance for one or more of their members;
  • "review regularly" the investment strategy of the fund; and
  • keep money or other assets of an SMSF separate from money and assets held by a fund trustee personally or by a standard employer-sponsor (or an associate).

Market value rules

Trustees of SMSFs are now required to value their assets at "market value" when preparing accounts and statements from the 2012-13 year of income. That is, SMSFs must begin to value their assets at market value when preparing a statement of financial position and an operating statement for the 2012-13 year of income and later years of income.

The intent of the new rules is to ensure that all SMSFs use one valuation method which it is expected will improve the reliability and usefulness of SMSF data. This is also meant to ensure that SMSF members are given an accurate picture of the current financial position of the fund and their entitlements by not allowing SMSFs to use historical value for asset valuations.

The new regulations say the meaning of "market value" is the amount that a willing buyer of an asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:

  • that the buyer and seller dealt with each other at arm's length in relation to the sale;
  • that the sale occurred after proper marketing of the asset;
  • that the buyer and seller acted knowledgeably and prudentially in relation to the sale.

Previously, SMSFs were generally able to choose either historical cost or market valuation accounting method to value their assets when preparing a statement of financial position and an operating statement. SMSFs in pension phase (and in-house assets) are already required to value assets at "market value" each year.

Note that a person commits an offence if the person contravenes the new market value rules. The penalty is a maximum of $11,000.

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