1. Regulatory Requirement for Market Valuation
Under SIS Regulation 8.02B, SMSFs must value all assets, including unlisted shares, at market value as at the end of each financial year for the fund’s financial statements and annual return. The auditor must verify this valuation during the annual audit.
2. Consequences of Failure
- Breach of Valuation Requirements (SIS Regulation 8.02B): The fund’s financial statements no longer give a “true and fair view” of its position, violating SISA Section 35B.
- Auditor Contravention Report (ACR) and Qualified Audit Opinion: The SMSF auditor is required to report the breach to the ATO via an ACR if it’s material (SISA Section 129). This could result in a qualified audit opinion, flagging the financials as inaccurate.
- Loss of Complying Status and Severe Penalties: Repeated or material breaches can lead to the SMSF losing complying status, taxing assets and income at 45%. Trustees may face administrative penalties (up to AUD 3,330 per breach) or disqualification (SISA Section 126K).
- ATO Investigations and Audits: The ATO uses analytics to target SMSFs failing valuation compliance, potentially leading to audits, directions to rectify (e.g., revalue and amend returns), and enforcement actions.
- Additional Tax & Penalties: The ATO may impose additional taxes on the fund and members, plus penalties for false or misleading statements (up to 200% of the underpaid tax).
Our recommendation: We strongly recommend obtaining an independent valuation for unlisted shares annually (e.g., from a qualified valuer or accountant using objective data like financial statements or recent sales).
