Valuing SMSF Investments in Unlisted Entities and Trusts

12 Oct 2021

Written by

David Busoli, Principal

Auditors will often take a look-through approach when dealing with valuations of private company shares and unit trusts. This is because the ATO have advised [QC 26343] that company or unit trust financial statements that are signed and audited are unlikely to be sufficient evidence on their own, particularly if the assets have been valued at cost in the financial statements.

The ATO expects that such valuations need to consider a number of factors including the value of the assets in the entity, and the amount paid on acquisition of the unlisted securities or units.

Suitable evidence to support the valuation may include:

  • an independent expert valuation of assets held in the company or unit trust,
  • a property valuation where property is the only asset of the company or unit trust, and
  • the date and price of the most recent sale and purchase of a share or unit between unrelated parties.

In cases where an independent expert valuation is not obtained, the ATO advise that SMSF trustees should provide.

  • evidence of how the market valuation was substantiated, including the objective and supportable data on which the trustees relied, and
  • the valuation method used, and any assumptions made.

Due to the potential need to value the underlying assets of such entities, any potential difficulty in complying with this requirement should be considered before the investment is made. e.g. Under certain conditions, an SMSF may hold a 50% equity in an unlisted company that is running a business without invoking the in-house asset provisions. A consideration that is often ignored is the cost and/or difficulty of valuing the business if required by the SMSF’s auditor.

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