The tax office have recently issued a bulk mail out direct to SMSF trustees and their auditors for fund’s that they believe lack diversification of investments.  Normally ATO correspondence will come via your accountant / SMSF advisor so we have a chance to explain how this impacts you personally and discuss your options.

This is a reaction from the tax office to the recent Royal Commission, and some key SMSF court cases that occurred last year.

We have already been discussing with our SMSF clients the importance of maintaining the funds investments within the asset classes they have set out in their strategies.  The ATO has taken this a step further and is questioning the trustees’ decisions where it believes the fund lacks diversification.

all super funds must have:

1. A documented investment strategy which must address:

a. Diversification

b. Risk

c. Liquidity

d. Insurance

2. The trustees’ must review their investment strategy  at least annually and documented [ usually via a minute]

3. The strategy must be followed

4. The investment strategy can be updated from the time when the objectives of the trustees’ and members changes. This is expected to happen throughout the life cycle of the fund as the members need change along the way.

While there is no obligation for the trustees to have a diversified portfolio, you do need to have considered it and have documented why the fund’s investment will not be diversified.

for example:

Many funds may lack diversification in the immediate to short term when they purchase direct property, as it is a bulky asset.  It is important the fund’s strategy addresses why this investment is appropriate to achieve the retirement objectives of the members, and will need to consider the longer-term strategy as to how and when they plan to diversify the investments.

what should you do?

If you have received one of these letters from the tax office, do not panic.  You should notify your SMSF advisor to review your specific strategy in light of these new guidelines from the ATO. It may require you to provide further justification for your investment strategy or an overall refresh of your fund’s existing strategy.  This should be done prior to your fund has its annual audit conducted, but our recommendation is you undertake this review now or as soon as practical to ensure your investments are in line with your strategy and the ATO guidelines.  We will work with you and your financial advisor to ensure your investment strategy covers all the key areas required under the super legislation.

any questions?

Please contact one of our SMSF specialists:

Disclaimer

Information provided in this blog and on this website is general in nature and does not constitute financial advice. Every effort has been made to ensure that the information is accurate, but information may become outdated as legislation and new government announcements are made. Individuals should not rely on this information to make a financial investment decision as it does not take into account their personal circumstance. Before making any decisions, we recommend you consult a licensed advisor to take into account your particular financial situations and needs.

businessDEPOT Financial Planning BNE and its advisors are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 | AFSL 357 306