ATO Community

SMSF Property Valuation

Ask a question
Highlighted

SF
Newbie

Views 459

Replies 2

Hi all,

 

I am have a conflict in opinions...

 

Valuation on property:

 

My view, the value of the property in the financials and assets on the ITR should be the valuation should you sell the property at arms length.  Not reduced by accumulated depreciation.  I.e. if a real estate values a property at $800,000, the net value of the property should reflect $800,000.  

 

Other view, depreciation should be accounted for.  So if $20,000 in accumulated depreciation, the property is recorded in accounts and ITR as $780,000.  

 

Opinions please.  Thank you.

1 ACCEPTED SOLUTION

Accepted Solutions

Best answer

ATO Certified

Devotee

Replies 0

Hi SF

 

Here's a link to guidance for SMSF trustees on asset valuations.

 

If you scroll half-way down you'll find reference to Real Property, and a link to additional information on what Market Value means.

 

The value is what you'd get if you sold the property. Not adjusted for depreciation. If the asset is genuinely depreciating in value over time this would be reflected in the amount of money a buyer would be willing to pay for it.

 

In the information on this page it talks about using a 'depreciated replacement cost approach'. This approach looks at how much it would cost to re-build a property from scratch, then to depreciate the cost to reflect the age of the existing building. ie If there are two identical houses side by side but one was built 5 years earlier, how much more is a buyer willing to pay for the newer one.

 

I'm an ATO employee voluntarily providing my time here

2 REPLIES 2

Best answer

ATO Certified

Devotee

Replies 0

Hi SF

 

Here's a link to guidance for SMSF trustees on asset valuations.

 

If you scroll half-way down you'll find reference to Real Property, and a link to additional information on what Market Value means.

 

The value is what you'd get if you sold the property. Not adjusted for depreciation. If the asset is genuinely depreciating in value over time this would be reflected in the amount of money a buyer would be willing to pay for it.

 

In the information on this page it talks about using a 'depreciated replacement cost approach'. This approach looks at how much it would cost to re-build a property from scratch, then to depreciate the cost to reflect the age of the existing building. ie If there are two identical houses side by side but one was built 5 years earlier, how much more is a buyer willing to pay for the newer one.

 

I'm an ATO employee voluntarily providing my time here

Devotee Registered Tax Practitioner

Replies 0

$ 800,000 is the correct answer, and this is what your auditor should be telling you.

 

If your book value =  780,000, then your journal entry is:

 

Property                    20,000  Dr

Unrealised gains       20,000  Cr

Revalue to market  

 

If the accum depn = construction cost write-off, it is arguable that the amount should not be in the P & L at all,

as it is merely a tax calc adjustment.

 

If I was auditing, I would be OK with either method  -  but I would want to make sure that there was a QS report to back it up.

 

Top Solution Authors