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Re: SMSF property valuation

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Newbie

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Hello, 

My SMSF holds a commercial property, among other assets.

Each year for the audit of my fund, I am required to submit a valuation of this property.

I am unsure what effect this valuation has on the tax return each year, and the SMSF total value.

 

For example, if the value of the property, and hence the fund, increases by $100k in a particular year, is there any disadvantage or tax payable?  I imagine this growth should not be taxed until such time as the property has been sold?   

 

Is there any disadvantage, or extra tax incurred if the total value of the fund grows beyond a certain theshold?

 

A valuation can be acceptable within a range of values.  I guess I'm asking from a tax perspective, what impacts are there to erring on the low, or the high side of the acceptable valiation range for the property?

 

THANKS!

 

 

 

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ATO Certified

Devotee

Replies 1

Hi Bob

 

You're right - the growth in the value of the property won't be taxed until the property is sold.

 

The growth would be reflected in your account balance though, and that could have some consequences. Your Total Super Balance as at 30 June of a year affects a couple of things:

 

  • If it's above $1.4m it'll start restricting your ability to make personal non-concessional super contributions in the following year.
  • A balance above $1.6m means that the SMSF can't use the segregated approach to determining exempt current pension income for that financial year. This is only relevant if the SMSF has started paying a pension to any member.
  • If it's above $500,000 you won't be able to make use of any unused concessional cap amounts from previous years. This is only relevant if you're not making full use of the available $25,000 concessional cap each year.

 

There are a few other things affected by Total Superannuation Balance, but those are the main ones.

 

The ATO provides a fair amount of guidance on valuations for SMSFs. Consistency is one of the main things. ie If you're going to be receiving a range estimate every year for your property and you decide to use the lower end of the range then you need to consistently use the lower end of the range from then on.

 

From a tax perspective the tax payable will depend on a range of factors. If your SMSF is a single member SMSF and the account value when you move into pension phase is below $1.6m and you sell the property when you're in pension phase, there won't be any tax payable as the gain will form part of the exempt current pension income of the fund.

 

Hm. It's probably worth talking to a professional about the valuation issue. Off the top of my head a valuation at the lower end of the range would lead to a lower amount counting towards your Transfer Balance Cap (or having to remain in an accumulation phase account), and if your pension account balance is below $1.6m would also reduce the minimum amount that must be paid from the pension account.

 

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

2 REPLIES 2
Highlighted

Best answer

ATO Certified

Devotee

Replies 1

Hi Bob

 

You're right - the growth in the value of the property won't be taxed until the property is sold.

 

The growth would be reflected in your account balance though, and that could have some consequences. Your Total Super Balance as at 30 June of a year affects a couple of things:

 

  • If it's above $1.4m it'll start restricting your ability to make personal non-concessional super contributions in the following year.
  • A balance above $1.6m means that the SMSF can't use the segregated approach to determining exempt current pension income for that financial year. This is only relevant if the SMSF has started paying a pension to any member.
  • If it's above $500,000 you won't be able to make use of any unused concessional cap amounts from previous years. This is only relevant if you're not making full use of the available $25,000 concessional cap each year.

 

There are a few other things affected by Total Superannuation Balance, but those are the main ones.

 

The ATO provides a fair amount of guidance on valuations for SMSFs. Consistency is one of the main things. ie If you're going to be receiving a range estimate every year for your property and you decide to use the lower end of the range then you need to consistently use the lower end of the range from then on.

 

From a tax perspective the tax payable will depend on a range of factors. If your SMSF is a single member SMSF and the account value when you move into pension phase is below $1.6m and you sell the property when you're in pension phase, there won't be any tax payable as the gain will form part of the exempt current pension income of the fund.

 

Hm. It's probably worth talking to a professional about the valuation issue. Off the top of my head a valuation at the lower end of the range would lead to a lower amount counting towards your Transfer Balance Cap (or having to remain in an accumulation phase account), and if your pension account balance is below $1.6m would also reduce the minimum amount that must be paid from the pension account.

 

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

Newbie

Replies 0

Thank you very much for taking the time to answer my question Smiley Happy