Surely nobody will try and minimize their un-realized profit tax ? Poor Labor will need another 40,000 bureaucrats to oversea the mangled mess.
From the AFR
Fake asset valuations set to surge under $3m super tax regime
Auditors are bracing for a wave of dodgy asset valuations under Labor’s superannuation tax, warning that self-managed superannuation funds are already trying to manipulate what they own to avoid or limit their exposure to the new impost.
They say there are some unscrupulous actors in the valuation industry, while “alarming” numbers of SMSF trustees refuse to pay for asset valuations or try to put forward rubbery figures based on out-of-date information.
We’re going to have some challenges about member balance manipulation and asset value manipulation in the lead up to this tax possibly being introduced,” said Belinda Aisbett, director of specialist SMSF auditor Super Sphere. She said attempts to game the system will typically fall into two camps. “Members that are under $3 million and want to stay under will be going very conservative, trying to find somebody that will value their assets lower.” But people with assets worth well over $3 million will want higher valuations to try to minimise the amount of unrealised capital gain that they’re going to have. “If they’re over $3 million, they’ll try to get as far over as they can so that any future increase in the market value that would otherwise be taxed has already been absorbed prior to the measure coming in,” Aisbett said.
“I’m working on [an SMSF audit] at the moment; they’ve got their properties [valued] at tens of millions of dollars, and they’re not worth tens of millions of dollars.” The proposed tax see gains have not been realised – based on the increase in asset values from one year to the next. For SMSFs that own listed assets such as shares, calculations by the Australian Taxation Office about how much may be owed under Division 296 tax will be relatively straightforward. But in the case of unlisted assets, such as property, investments in private companies and collectibles such as cars, wine and artworks, the tax owed – or whether they have assets over $3 million and are subject to the tax in the first place – will rely
If the tax begins from July 1, 2025 as planned, values of unlisted assets on June 30, 2025 will serve as the baseline against which future gains or losses will begin to be calculated from, making those valuations “absolutely critical”, chief executive of the SMSF Association Peter Burgess said.
“For those people that are well over $3 million, they’ll want a high valuation because then any growth is based on the increase from that level,” he said. “Whereas if you’re under $3 million, but getting close to that mark you’ll want a low valuation.”Valuation methodologies Bryce Figot, special counsel at specialist SMSF law firm, DBA Lawyers, said laws had been in place for well over a decade that require all SMSF assets to be reported annually at market value. But in the case of property, valuations can be based on real estate agent appraisals that give a range rather than an exact value, while for private companies, valuations can be based on the value ascribed by its directors. In neither case are sworn valuations from independent registered valuers required. “You do sometimes see valuations, and it’s pretty clear that it’s the tail wagging the dog,” Figot said. “People want to get a result, and then look for ways to justify that result.” Figot said sworn valuations could range from $2000 for a commercial property to “tens of thousands of dollars” for a private company or a more obscure asset. SMSF trustees have an obligation to act in the best interests of fund members when it comes to managing costs of the SMSF, but also have a conflicting obligation to seek quality valuations. David Saul, the founder of auditing firm Saul SMSF, said the high cost of sworn valuations put many SMSFs off getting them, while some SMSF trustees also remained reluctant to update valuations annually.
“The number of less informed advisers and trustees we come across resistant to updating values, even without Division 296, is still alarming,” he said. “Market valuations will soon have direct tax consequences. The age of set-and-forget valuations is over. Every dollar matters.” SMSF accounts must be audited annually before being submitted to the ATO, and if an auditor finds there is insufficient evidence to support an asset valuation, they must qualify the audit report they submit to the ATO. “The biggest challenge for us auditors is going to be those clients that try and manipulate balances to avoid or minimise the potential effect of this new tax,” Aisbett said. “That begs the question of how many audit reports we qualify.” When asked whether it will require asset valuations to be independent, an ATO spokesperson said it was “unable to comment on policy matters”. But Figot said, “it’s entirely plausible” that the ATO may require more stringent valuation processes in light of the new tax.
