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ATO, Investments, Superannuation

ATO to scrutinise investment strategies

ATO SMSFs investment strategy

The ATO will ask a number of SMSFs to produce a detailed investment strategy to justify why their investments are held in single assets.

The ATO will ask nearly 18,000 SMSFs to provide evidence their investment strategy meets the retirement objectives and cash-flow requirements of the fund following on from concerns funds may not be meeting investment diversification requirements under superannuation regulations.

In a recent online update the ATO restated its intention to write to 17,700 funds where the regulator held the view the investment strategy of the SMSFs did not meet regulation 4.09 of the Superannuation Industry (Supervision) (SIS) Act.

The ATO first flagged the intention to make contact with the SMSFs on 9 August, stating its records showed the funds may hold 90 per cent or more of their investments in a single asset or asset class.

The update stated tax professionals may be contacted by SMSF trustee clients about the letter and “to help your clients, remind them to check their investment strategy follows the law, and have their investment strategy ready to show to their SMSF auditor during their next audit”.

Trustee clients were also to be told they must be able to provide their SMSF auditor with evidence of how they considered their investment strategy met a range of requirements outlined by the ATO.

These requirements include the diversification of fund investments, the risks of inadequate diversification within the context of their SMSF investment portfolio, the making, holding, realising and the likely return from their fund investments, relating to their retirement objectives and expected cash-flow requirements, the liquidity of their investments, allowing the fund to meet costs and pay benefits as members retire, and whether insurance cover should be held for one or more members.

The ATO pointed out SMSF trustees who had problems with the requirements should seek help, but penalties would apply where action did not take place.

“We will warn trustees that penalties may apply if their auditor tells us they have failed to rectify non-compliance with these requirements,” it said.

“If your trustee clients need help, let them know they should consider seeking assistance from a licensed SMSF adviser.”

The ATO has, however, in another online post directed to SMSF trustees, indicated it would take a more favourable view of contraventions where they are self-disclosed by trustees and funds instead of being discovered during a fund audit.

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