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If you own a business within a self-managed super fund (SMSF), regular valuations are essential to ensure compliance with Australia’s superannuation laws. Here are five key considerations to keep in mind:
1. Compliance with Superannuation Legislation
To remain compliant with superannuation legislation, your SMSF’s assets must be valued regularly. The Australian Taxation Office (ATO) requires that assets be reported at market value, and it may review valuations as part of its compliance monitoring. Ensure you have evidence to support your valuations and documentation of the methods used.
2. Understanding Market Value
The ATO defines market value as the estimated monetary worth of an asset on the open market at a particular time. This value is based on:
- The most valuable use of the asset (which may differ from its current use)
- The amount a willing buyer and seller would agree to in an arm’s length transaction
3. Timing of Valuations
When preparing your SMSF financial accounts, it’s advisable to have asset valuations done early. This preparation will facilitate the auditing process, making it easier and potentially quicker for the auditor to complete their work.
4. Restrictions on Borrowing
SMSFs are generally prohibited from borrowing money. Exceptions under section 67A allow borrowing to purchase commercial property, which qualifies as business real property. However, using an overdraft or margin lending account to fund business activities does not fall under these exceptions.
5. In-House Asset Rules
Whether an SMSF can buy your business depends on its structure. If your business is a company you control, the shares would be considered in-house assets. The market value of these shares cannot exceed 5% of the total market value of the fund’s assets at the time of purchase, and no other in-house assets should be owned by the SMSF. Regularly review the market value of the shares to ensure the 5% threshold is not exceeded.
Operating a business within an super fund involves navigating strict rules and regulations. Regular valuations are crucial for compliance and effective management. Always seek professional advice from your SMSF Specialist or Licensed Financial Adviser to ensure you meet all legal requirements and make informed decisions.
It’s important to remember that there are strict rules and regulations for operating a business within an SMSF. Professional advice should be obtained from your SMSF Specialist or financial advice from your Licensed Financial Adviser.
Read our other blogs:
Valuing Minority Shareholdings in Private Companies
Best Tax Considerations When Selling or Buying an Australian Business