As an SMSF trustee, it's crucial to understand and comply with the annual valuation requirements for investments in unlisted or private companies.
This guide outlines the key considerations and steps you need to take to ensure your fund meets its obligations.
Annual Requirements
1. **Company Financial Statements**: Obtain signed financial statements from the company directors[2].
2. **Dividend Statements**: Collect all dividend statements for the financial year[2].
3. **Current Market Value**: Determine and document the current market value of the company shares[2].
4. **ASIC Search**: Conduct an ASIC search to verify issued shares and officeholders[2].
Valuation Methodology
Regulation 8.02B of the SIS Regulations requires assets to be valued at market value[1]. Using cost price or net tangible assets (NTA) is generally insufficient. Consider the following methods when valuing unlisted companies:
- Share price of equity raised in the past 12 months
- Share price of shares sold in the past 12 months
- Valuation provided by the company CFO with explanation
- Separate valuation of company assets and liabilities
- NTA (only if company assets are valued at market/fair value in financial statements)
- Cost price (reliable only in the first year of acquisition)[2]
Additional Considerations for Related Companies
If the company is related to the fund (i.e., the fund and related parties have significant influence or majority voting interest), you must also provide:
- Copies of bank statements for large cash and loan accounts
- Title searches for any properties owned by the company[2]
Leased Assets
If the company's assets are leased to a related party, ensure you have:
- Current lease agreement or agent rental statements
- Independent rental assessment (required on commencement or renewal of lease, no greater than 5 years old)[2]
Best Practices
1. **Maintain Comprehensive Records**: Keep all relevant documents, including share certificates, purchase receipts, and valuation evidence.
2. **Seek Professional Advice**: Consider engaging a qualified independent valuer, especially if the investment represents a significant portion of the fund's assets or the valuation is complex[1].
3. **Review Annually**: The valuation method and evidence are reassessed each year to ensure they remain appropriate and reflect any significant changes in the company's circumstances[1].
4. **Document Your Process**: Maintain clear records of how you arrived at the valuation, including any assumptions made and data used[1].
By following these guidelines, you'll be better positioned to meet your SMSF's annual valuation requirements for unlisted and private company investments, ensure compliance with ATO regulations, and safeguard your fund's integrity.
Sources
[2] Attached PDF from ASF Audits: