Three Major Changes that will affect all 2013 SMSF audits.

1. Assets to be valued at market value Effective for all accounts prepared for the 2013 financial years and later, Regulation 8.02B  requires all assets of a fund to be valued at market value. Market value is defined in the Act as ‘the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:
   (a) that the buyer and the seller dealt with 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’.We see the following issues arising:

    

   • All real estate assets will need to be reviewed to determine whether the current book value represents market.  As a rule of thumb we recommend a valuation be undertaken every three years.
   • Valuation of collectibles and personal use assets.
   • Valuations of in-house assets and unrelated shares and unit trust.

   The detailed ATO guidelines can be accessed  here.

   Of course please contact us if you need clarification or assistance on determining the appropriate valuation method for a class of asset.

2. New investment strategy required for every SMSF   The amended Regulation 4.09   effectively means a majority of SMSFs will need to review and implement a new or updated strategy for 30 June 2013. The two main changes are:
   • The trustee of a fund needs to ‘regularly’ review the investment strategy.
   • The strategy needs to have regard as to ‘whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund’

   We would recommend that a SMSF should implement a new investment strategy for the 2013 financial year to consider the new insurance requirement.

   Each subsequent year the Trustees should minute that they have reviewed the strategy and either note that it is still appropriate or amend where necessary.

3. Assets not held in the name of the Trustees of the Fund The most common breach of the Act occurs when assets of the fund are held in the incorrect name. This can occur when there is a change of Trustees and the ownership documents are not updated or where there are numerous individual trustees and only one trustee name is shown. Previously covered by Section 52(2)(d)  this was not a section that the ATO could impose penalty sanctions on the Trustees. Regulation 4.09A  has been issued which will give the ATO more power to impose fines and make funds non-complying for future breaches.We recommend that Trustees review and correct any potential breaches of this Act prior to submitting their fund for audit. In relation to real property held in NSW, trustees should consider one of the options proposed by the NSW Land and Property Information Office  in meeting the requirements of the regulation.

   We recommend that the most efficient solution is to have a sole purpose corporate trustee. This removes issues of individual members joining and leaving the fund and corporations who also act as trustees for other entities or trade in their own right.