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ATO investment strategy guidance imminent

SMSF investment strategy guidance

Guidance in clarifying acceptable practices in formulating SMSF investment strategies will soon be released by the ATO.

The ATO will soon be publishing some updated trustee guidance clarifying what it considers non-complying practices or methods in formulating the SMSF investment strategy.

In particular the guidance will be addressing the issue of incorporating investment bands within the aforementioned document.

“The position of the regulator will be that merely specifying ranges of [0 to] 100 per cent for a broad range of assets, without articulating how the trustees intend to invest within the fund, is not a valid approach to meeting the requirements of SIS (Superannuation Industry Supervision) reg 4.09,” Smarter SMSF chief executive Aaron Dunn said.

He pointed out ATO assistant commissioner SMSF segment Dana Fleming recently described this type of investment strategy as trustees declaring they can do anything but they don’t know what that anything will be.

Dunn noted the regulator’s narrower interpretation of what it considered a compliant investment strategy potentially has significant consequences for the sector.

“By and large SMSFs take a strategic asset allocation approach. That’s a long-term asset allocation approach giving considerations to targets and ranges and with that circumstance it would certainly be in the ATO’s wheelhouse as a 0 to 100 per cent [strategy] being an inappropriate and ineffective investment strategy,” he said.

“[This would] therefore give an effect to the fund’s investment strategy risking penalties of course of up to $4200.”

However Dunn acknowledged a case could be argued for an SMSF to legitimately have an investment strategy incorporating asset allocation of between 0 and 100 per cent but said it would require more extensive interpretation of some of the other rules governing superannuation funds.

“This is where we need to go back and look at some other guidance [such as Prudential Practice Guide] SPG 530. [This is] an APRA (Australian Prudential Regulation Authority) guidance that looks around the investment strategy and investment controls that really targets and looks at the different techniques and the ways in which trustees would look to invest monies within a superannuation fund,” he explained.

SMSF investment strategies have recently come under greater scrutiny after the ATO sent out 17,700 letters to trustees asking them to verify the validity of this document.

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