| Value
your properties The most
talked about investment class at the moment for do-it-yourself
superannuation is property - a survey of DIY funds by advisers Partners
Group suggests it accounts for 20 per cent of an average fund's assets,
compared to 13 per cent in 2008.
The annual audit and annual return
period for DIY funds is coming up so property owners need to pay attention
to how their investments are valued.
Because property investing often
represents quite a large proportion of the total investments of a fund, DIY
trustees who choose to hold either residential or commercial property have
extra responsibilities, Olivia Long, of DIY super administrator
SuperGuardian, says.
One of these responsibilities is the
need for the property to be recorded at an appropriate value in the year-end
financial accounts. Long says the appropriate value of a property is its
market value.
While it is easy with investments
like shares that are listed on the stock market to come up with a value at
any time, until a property is sold the value must be an estimate. Specialist
DIY super auditor Belinda Aisbett of Super Sphere says there are various
ways to value a property.
The Australian Taxation Office
offers guidelines on valuation that suggest that while it prefers funds to
put a market value on all their investments each year, with assets like
property it will accept an estimate by fund trustees so long as it is
reasonable and objective. Aisbett says when a trustee offers her an estimate she wants to know its
basis. Usually it is a written appraisal by a real estate agent. A more
serious valuation is an independent assessment by a qualified property
valuer. Long says an independent property valuation is the most accurate, followed
by a valuation from a real estate agent. Other sources include the capital-improved valuation based on council rates.
While council rates can provide a foundation for a valuation, Long says this
can vary significantly by tens of thousands of dollars from what is actually
received in a property sale. If council rates are to be used to determine a
value, a suitable method is to compare the rates at the time of purchase
against what was actually paid for the property and extrapolate it out using
the current council rate value. Aisbett says she is not a big fan of this method because it depends on the
valuation policy of the council as to whether that is reasonable or not. It
also depends on when the council last valued the property. Some trustees put the property into the financial accounts at cost, Aisbett
says, and this is possible because revaluing investments is actually not a
legislated requirement unless fund members start a pension or a member is
leaving the fund. For a fund in the accumulation phase, she says, you can
leave an asset like property at cost,
although before you do so
you need to check that the fund rules don't state that you have to come up
with an annual valuation, which they can do. |
As a fund auditor, Aisbett says her first move on valuation is to check the
trust rules. If they are silent on valuation requirements or they state that
it is up to the trustee's discretion and they are in accumulation phase and
have put the property in the accounts at cost price, this is no problem from
an audit perspective as far as she is concerned. Long says, however, that there are auditors who will insist on regular
revaluations during the
accumulation phase even to the point of an independent assessment by a
qualified valuer every three years. Where a valuation is not recent some
will check a property before they are satisfied the value is fair and
reasonable. It is not uncommon, Long says, for an auditor to ask for evidence of a more
recent valuation if they believe the current value is too high or too low,
or even unsubstantiated. Aisbett says it is essential that when a fund starts a pension the
investments must appear at market value because the minimum pension
requirement is based on the annual value of the fund. A valuation should
take place at the end of the year. She says that a real estate agent's
appraisal is often quite satisfactory to support an annual valuation
estimate by a trustee, although she accepts that not every auditor agrees
with this. Formal annual independent valuations can be quite expensive for
accounting purposes. When she does ask for such valuations, however, is if a trustee wants to
transfer a commercial property into a fund or when a member leaves a fund or
dies. When a member takes their entire benefit from a fund, she says, all the
investments need to be appraised at market value. She insists the market
value be net of investment disposal costs -otherwise the value of the assets
will be overstated. All these requirements are extra steps that trustees need to be familiar
with when they own property.
John Wasiliev - The Weekend Australian Financial Review - 12-13 February
2011 |
