ATO focus on SMSF investment strategy

If your SMSF has more than 90% of funds in one asset or a single asset class then you may receive a letter from the ATO.

This might be an issue for those Trustees using their SMSF as a vehicle to purchase business premises, as part of a longer term retirement strategy or have purchased a residential property using borrowed funds. With the volatility of the share market many Trustees have sold off their share portfolio and holding their super balance predominantly in cash.

For those Trustees who have received a letter, the ATO is not saying that a particular strategy the Trustees have chosen is wrong, they are just asking the Trustees to ensure due consideration around diversification and whether their strategy will meet their retirement goals.

SMSFs are self-managed and the Trustees are able to make their own decisions regarding how they wish to invest their retirement benefits. However as a SMSF is self-directed the Trustees are ultimately responsible for the investment strategy and ensuring it follows the relevant guidelines and the law.

When was the last time you reviewed your investment strategy?

It is the responsibility of the Trustee/s to document how you want to invest your super with the goal to provide you with sufficient funds for your retirement.  The investments you choose need to be consistent with your fund’s investment objectives and purpose.

When considering your fund’s investment goals and objectives you need to consider the following:

• Diversification: if your investments are spread across a number of different assets or are they invested in one asset
• Risks: each investment will have a varying level of risk. A portfolio of diversified shares are likely to be lower risk than that of other asset classes, such as cryptocurrency or high risk shares
• Cash flow: consider your retirement objectives and expected cash flow requirements
• Liquidity: to meet ongoing costs, tax liabilities and member benefit payments
• Insurance: consider if cover should be held for one or more members.

Once the investment strategy is set it is important to review the strategy regularly to ensure that it continues to meet the objectives of the members by providing benefits in their retirement. As part of the annual audit of your SMSF the auditor is required to review the investment strategy. The auditor will review the investment strategy to ensure that the Trustees have considered each of the above mentioned guidelines but they will not be passing judgement on how the funds have been invested for the member’s retirement.

How can we help?

If you are unsure of whether your investment strategy meets the above mentioned guidelines please contact your Bentleys Advisor.

This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Bentleys (Australia) Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based on their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.