Why an annual Market Value is required

Superannuation regulations require trustees to value all of the fund's Assets at market value when preparing the fund's financial statements each year. This applies to property just as much as to shares. Accurate values feed into member balances, pension calculations, contribution cap tests and the fund's overall reporting.

A formal valuation is not always required

A common misconception is that trustees must obtain a full independent valuation every year. In most cases that is not required. The market value must be based on objective and supportable data, which trustees can often establish themselves using reliable evidence.

What counts as good evidence

For real property, acceptable evidence typically includes recent comparable sales of similar properties in the area, a real estate agent's appraisal, the most recent council rates notice where it is consistent with other data, and net rental Yield information for commercial property as a supporting indicator. For a recently purchased property with no material change since, the purchase contract can support the value. Using more than one source rather than relying on a single figure carries more weight.

When an independent valuation is appropriate

An independent valuation is warranted when the property represents a significant proportion of the fund's total assets, when the fund is starting or has a pension and accurate balances matter for tax, when there is a related-party transaction such as buying from or leasing to a related party, and when a significant event — such as a market shift or major renovation — may have changed the value materially.

A hypothetical illustration

Consider a hypothetical fund that owns a commercial unit representing most of its assets and is about to commence a pension for a member. The trustees obtain an independent valuation and keep the report on file, along with a recent comparable sale and the rates notice. When the auditor reviews the pension commencement, the value is well supported and the audit proceeds without queries.

Documenting the evidence

Evidence should be kept with the fund's records and be ready to provide to the auditor, noting the date of the evidence, its source, and how the final figure was reached. If an earlier independent valuation was relied on, other objective and supportable data is expected to confirm it still holds.

Valuing other hard-to-value assets

Property is not the only asset that needs support. Unlisted shares, units in private trusts, and collectables such as art also require objective evidence of value. For unlisted investments, acceptable evidence can include a qualified independent valuation, audited financial statements that value the underlying assets at market value, or documentation of the valuation method and the data behind it.

Related-party dealings raise the bar

If the fund buys Business real property from a member's business, or leases property to a related party, the value and the rent must reflect genuine market levels. In these situations an independent valuation and evidence of market rent are strongly relevant, as the transaction will attract close scrutiny.