The new requirement to value all assets supporting a pension at market value annually will have an impact on minimum pension amounts from here onwards.  To be precise, SIS Regulation 8.02B requires all SMSF assets to be valued at market value each year.  In the past we relied on ATO Taxation Determination TD 2000/29 that required that where an accumulation fund has underlying assets supporting a pension, those assets must be valued at their net market value on the commencement day of the pension.

In subsequent years we found that SMSF assets used to pay a pension may not have been re-valued correctly after commencement of the pension.

The new risk associated with Regulation 8.02B is that failure to mark to market the value of the asset has potential to cause the fund to fail to meet the minimum pension requirements. With normal shares, managed funds, commodities like gold etc this is not too hard as they can be valued quite easily but the danger arises when the fund has investments in private companies or private trusts, patents or unique property assets.

Unlike SMSFs that must value assets at market value, private trusts and companies are generally not subject to the same regulations or requirements. Therefore, those controlling these entities may adopt a different valuation method such as valuing shares or units at cost in their financials. The impact of the different valuation methods is that the fund’s investment in the private company or a unit trust may not be valued at market value, with the implication being that the fund fails to meet the minimum pension payment required to maintain the tax exempt status of the pension.

The problem is that the cost of valuing an unlisted company or trust assets may require a great deal of work and even a specialist to provide a report. This is definitely a matter to consider sooner rather than later as it is most likely to affect larger pensions accounts and therefore the cost of losing exempt current pension income status (ECPI) may be a considerable amount.

Likewise if you have assets such as patents that are hard to value as they may have nothing to compare with or their value is subject to many other factors you need to document your valuation method and be prudent in your assumptions. Not the time for aggressive tactics and I would always suggest speak with your auditor before completing the valuations for the financials to ensure they are happy with your assumptions.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.