Self Managed Superannuation Funds Determination SMSFD 2008/2
Date of effect: 16 April 2008

What this ruling is about: Ruling 1. No. For the purposes of determining the market value ratio of a self managed superannuation fund's (SMSF's) in-house assets under section 75 of the Superannuation Industry (Supervision) Act 1993 (SISA), [1] trustees of an SMSF must value all of the SMSF's assets, including, for example, shares in a related company or units in a related unit trust, at market value. Funds to which this Determination applies 2. This Determination applies to SMSFs [2] and former SMSFs. [3] References in the Determination to SMSFs include former SMSFs unless otherwise indicated. Date of effect 3. This Determination applies both before and after its date of issue. However, the Determination does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination. Commissioner of Taxation 16 April 2008


Ruling: 2. This Determination applies to SMSFs [2] and former SMSFs. [3] References in the Determination to SMSFs include former SMSFs unless otherwise indicated.


Appendix: 6. The general formula for working out an SMSF's market value ratio of in-house assets is set out in subsection 75(1): 7. Subsection 10(1) defines 'value' to mean market value. An SMSF is therefore required to value all assets of the SMSF at market value (denominator) whether in-house assets or not. A subset of all assets valued at market value is those assets that are in-house assets of the SMSF (numerator). 8. The term 'market value' is in turn defined in subsection 10(1) to mean, in relation to an asset, the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller [6] if the following assumptions were made: 9. If, for example, an SMSF held shares in a related company or units in a related unit trust, those assets are in-house assets of the SMSF (assuming that no exception applies to exclude the shares or units from being in-house assets). The SMSF is required to value the shares and units (along with all other assets held by the SMSF) at market value. 10. At the time of acquiring such shares or units, the cost of the shares or units will typically be equivalent to the market value of the shares or units. [7] At some later point in time the market value of the shares or units is less likely to be equivalent to the historical cost (purchase price) of the shares or units. In any case, it is nonetheless necessary to undertake a market valuation of the shares or units. 11. To determine the market value of assets held by an SMSF, a trustee of an SMSF can choose to obtain a valuation from a qualified valuer or compute their own valuation based on reasonably objective and supportable data. [8] SMSFD 2007/D3


Preamble: Self Managed Superannuation Funds Determinations (whether draft or final) are not legally binding on the Commissioner. However, if the Commissioner later takes the view that the law applies less favourably to you than the final version of this ruling indicates, the fact that you acted in accordance with the final version of this ruling would be a relevant factor in your favour in the Commissioner's exercise of any discretion as to what action to take in response to a breach of that law. The Commissioner may, having regard to all the circumstances, decide that it is appropriate to take no action in response to the breach. | Background: 4. Assets held by an SMSF may be in-house assets of the SMSF under subsection 71(1). [4] For example, shares in a related company or units in a related unit trust held by an SMSF are in-house assets of the SMSF unless an exception applies to exclude the shares or units from being in-house assets of the SMSF. [5] | 5. The valuation of in-house assets is relevant to determining whether an SMSF complies with the in-house asset acquisition rules in section 83. An SMSF must not acquire an in-house asset if the market value ratio of the SMSF's in-house assets exceeds 5% (see subsection 83(2)), or would exceed 5% if the asset was acquired (see subsection 83(3)). The valuation of in-house assets is also relevant to section 82, which requires trustees to dispose of in-house assets if, at the end of a year of income, the market value ratio of the SMSF's in-house assets exceeds the 5% limit. | Number of whole dollars in value of in-house assets of the fund Number of whole dollars in value of all the assets of the fund


Legislative references: SISA 1993 10(1) SISA 1993 10(4) SISA 1993 17A SISA 1993 71(1) SISA 1993 71(1)(h) SISA 1993 71(1A) SISA 1993 75 SISA 1993 75(1) SISA 1993 82 SISA 1993 83 SISA 1993 83(2) SISA 1993 83(3) SISA 1993 109
Subject references: self managed superannuation funds superannuation superannuation fund in house assets valuation
Other references: ATO Superannuation Circular 2003/1 Self Managed Superannuation Funds