Last week the ATO sent out over 17,700 letters to taxpayers who operate a Self Managed Superfund (SMSF) which holds 90% or more of its funds in one asset or a single asset class. This correspondence was based on the ATO’s concerns some SMSF trustees haven’t considered the risks associated with the lack of diversity with investments.
Needless to say, we have had a number of clients contact us about the above notification and in particular the excessive fine associated with non-compliance. The penalty can only be applied in circumstances where the trustee has not gone through the process of putting together the investment strategy; it’s not to do with the investments themselves.
As trustees of a SMSF, it is the obligation of the trustee to ensure the fund has an investment strategy. It is also the trustee’s responsibility to ensure the investments within the SMSF comply with this strategy. What the trustee is required to do is formulate the strategy having regard to the whole circumstances of the fund and the following factors: risk, the composition and diversity of assets, liquidity of the assets and the ability of the fund to discharge its liabilities. If this has all been considered, then as a trustee you have complied with your duties. The investment strategy should be reviewed regularly and updated as required.
As long as a trustee has considered all the elements and requirements that are contained in the covenants of the Superannuation Industry Supervision (SIS Act), there is no power for the ATO or anyone else to dictate what a fund holds….hence the name ‘Self Managed’.
Please rest assured, if our auditor deemed any of our client’s investment strategies as not being sufficient, this would be brought to your attention in your annual audit report. To date we have not received any notifications from our auditor for any of our client’s funds.