Earlier this year the ATO sent letters to more than 16,500 SMSF trustees and 1,000 auditors, warning them they were under scrutiny as they allegedly reported certain classes of assets at the same value for at least three income years.

“The ATO noticed that valuations for certain assets have not moved from year-to-year questioning whether this annual obligation has been properly adhered to,” Greco said.

“Asset valuation is a key component in preparing meaningful SMSF financial reports. There is an obligation to value SMSF assets at market value each year.”

Greco said valuations for listed assets like ASX shares are easily ascertainable but not for non-listed assets.

“SMSFs can own a wide variety of non-listed assets (unlisted shares or units, property, collectable and personal use assets (vintage cars, artwork, wine, jewellery) that can make valuations more challenging and an expensive exercise for some assets,” he said.

“The members of an SMSF have full control over their investment decisions but they need to justify this choice as part of their fund’s investment strategy and also need to consider the expense of obtaining a market valuation for some of their investment choices. This may be an aspect they do not fully appreciate when making investment choices.”

Liam Shorte, director of Sonas Wealth, said the ATO is trying to ensure accurate valuations as these will ultimately influence the proposed Div 296 tax.

“The ATO knows that property prices have changed. Residential prices have increased but commercial prices have actually dropped. In pension phase it is important to have valuations done every year and it is now best practice to do the same when a fund is in accumulation phase,” he said.

Shorte said many SMSFs are now looking at the liquidation of property as a strategy in preparation for the new tax.

“Clients are considering whether to sell the whole property, sell some of the property to themselves or a family trust, or to sell the whole property to a structure like a family trust,” he said.

“Each strategy has different tax consequences, but leaving property in super could still be the best option. The next 18 months will be about running the figures to see which is best and that is why those accurate valuations need to be obtained.”

Shorte said most SMSF trustees are “canny investors” but often rely on valuations of their property assets through real estate agents and he warned that commercial property can have a much different valuation than what is seen in the market.

“They are normally large assets. People get their car serviced each year, so surely it is also worth spending money to get proper valuations on assets,” he said.

He continued that despite the looming $3 million tax legislation, property investment is still a crucial option for SMSFs.

“The majority of SMSFs don’t have anywhere near $3 million in super so property is always going to be an attractive investment for super. The issue is that we have a lot of commercial properties that have been in funds for 10-15 years and they are now worth considerably more than when they were first purchased,” he said.

However, he said if a trustee was still looking at investing in commercial property, especially for their business, it is still a viable option.

“If somebody is going to buy $1.5 million commercial property for their business, it can be structured, for example, so that each spouse is allocated $750,000 [into their asset pool]. There is still a lot of tax value without breaching the $3 million threshold,” he said.

“However, without indexation of this new tax, the real trap is tax bracket creep. In saying that, property is still a crucial component in SMSFs, especially for trustees who buy commercial property as part of their business. It can free up borrowing capacity and if the property is held in super it is protected from bankruptcy.”

Shorte added that advisers and auditors should also be wary of trustees who may threaten them regarding valuations.

“This will be a very prominent issue as auditors request updated true market valuations and accountants and trustees try to push back,” he said.

Bryce Figot, special counsel for DBA Lawyers, said in a recent Institute of Financial Professionals Australia webinar that it is a requirement under the Superannuation (Industry) Supervision Act for auditors to report any interference by a trustee to the regulator.

He said auditors could face legal consequences if they decide not to lodge an Auditors Contravention Report after identifying a breach during a fund review.

“The ATO states if you know about [a potential audit issue], merely telling the trustee doesn’t inoculate you from risk, indeed it could get you into more risk,” he said.