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Australian Taxation Office Superannuation Circular = 2003/1 =96=20 Valuation of assets

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Introduction

The Australian Taxation Office (ATO) intends = that self=20 managed superannuation funds should use market values for = all=20 valuation purposes. This includes valuations for = determining the=20 purchase price of a pension and the use of market value = accounting=20 for all financial statements.=20
The purpose of this Circular is to provide = the basis=20 for conducting these valuations.

Australian Accounting Standard AAS 25 which = applies to=20 reporting entities requires superannuation funds to value = their=20 assets at their net market value as at the reporting date. = However, most self managed superannuation funds can = appropriately=20 be classified as non-reporting entities and therefore not = required=20 to comply with this standard.=20
Regardless of this, the ATO=92s position is = that self=20 managed superannuation funds should use market value = reporting for=20 their financial statements, even where the auditor has = determined=20 that the fund is a non-reporting entity.=20
This view is shared by the Australian = Prudential=20 Regulation Authority (APRA) and is set out in their = Addendum to=20 Circular No. IV.A.4.

By using market value reporting, self = managed=20 superannuation funds will ensure that members' benefits, = as=20 reported in the annual statements, will reflect all market = value=20 movements of the reporting period.=20
This consistent accounting approach by all=20 superannuation funds will assist trustees with the = investment=20 decisions of the fund by allowing for the comparison of = financial=20 statements from subsequent periods and with other = superannuation=20 funds. It will also assist trustees to determine whether = the mix=20 of investments in the fund is in accordance with the = investment=20 strategy.=20
Market value reporting will also allow = trustees to=20 easily determine the resources that the fund has available = for=20 payment of benefits. For example, if a member was to leave = the=20 fund the trustees could easily determine the member=92s = account=20 balance as at the reporting date.

Taxation Determination TD 2000/29 provides = the method=20 of calculating the capital value of purchased pensions not = payable=20 for life, which includes allocated pensions, for the = purposes of=20 the reasonable benefit limits.=20
The formula for this calculation = incorporates the=20 purchase price of the pension. Where an accumulation fund = has=20 underlying assets that commence to provide for the = pension, the=20 assets must be valued at their net market value on the=20 commencement day of the pension. It is this value that = must be=20 reported to the ATO as the purchase price of the = pension.

Sub-section 10(1) of the Superannuation = Industry=20 (Supervision) Act 1993 (SISA) defines market value as = "the=20 amount that a willing buyer of the asset could reasonably = be=20 expected to pay to acquire the asset from a willing seller = if the=20 following assumptions were made:

a. that the buyer and the seller dealt = with=20 each other at arm's length in relation to the sale;

b. that the sale occurred after proper = marketing of the asset;

c. that the buyer and the seller acted = knowledgeably and prudentially in relation to the = sale".

Similarly, net market value is defined in = AAS 25 as=20 "the amount which could be expected to be received from = the=20 disposal of an asset in an orderly market after deducting = costs=20 expected to be incurred in realising the proceeds of such = a=20 disposal".

It is not intended that obtaining a market = valuation=20 should be onerous or expensive for the trustees.=20
Depending on the situation, a market = valuation may be=20 undertaken by either a qualified valuer or a person = without formal=20 qualifications which includes the trustees of the fund. In = any=20 case, the person who conducts the valuation must base = their=20 valuation on reasonably objective and supportable data.=20
Use of a qualified valuer should be = considered where=20 the value of the asset represents a significant proportion = of the=20 fund's value or where the nature of the asset indicates = that the=20 valuation is likely to be complex or difficult.

Regardless of who conducts the valuation = the trustees=20 must be able to demonstrate that the valuation has been = arrived at=20 using a =91reasonable=92 process. Generally, a valuation = can be=20 considered as =91reasonable=92 where it:

takes into account all relevant factors and = considerations=20 likely to affect the value of the asset;=20
has been undertaken in good faith;=20
results from a rational and reasoned process; and=20
is capable of explanation to a third party.

For example, when valuing property assets = relevant=20 factors and considerations may include factors such as, = but not=20 limited to:

The trustees must keep appropriate records = of how the=20 valuations were determined, so they can be readily = verified if=20 required. Valuations prepared by suitably qualified and=20 independent valuers are less likely to be = challenged.

For the purpose of financial reporting, = valuations=20 should be conducted at the funds reporting date on an = annual=20 basis, which in most cases will be 30 June.=20
For the purposes of calculating the = purchase price of=20 a pension and the level of =91in house=92 assets the = ATO will=20 accept the most recent valuation obtained within the last = 12=20 months of the commencement day of the pension, including=20 valuations obtained for other statutory = purposes.

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