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ATO, Compliance & Regulation

ATO issues in-house asset directive

In-house assets

The ATO has provided SMSF trustees with a course of action should a fund be in breach of the in-house assets rules due to COVID-19-driven market downturns.

The ATO has outlined the course of action trustees should take if their SMSF breaches the in-house assets rules due to market downturns as a result of the economic impact of the COVID-19 pandemic, as well as its compliance approach to the issue.

Rules governing SMSFs dictate a fund cannot hold an in-house asset that exceeds 5 per cent of the fund’s total assets based on market value.

Should an SMSFs have an in-house asset breach stemming from recent market fluctuations as at 30 June 2020, the ATO has stated the trustees must prepare a written plan to reduce the market ratio of in-house assets to 5 per cent or below.

Further, the regulator said the plan must be prepared before the end of the next following year of income. For example, the plan must be prepared and implemented on or before 30 June 2021 if the SMSF breaches the 5 per cent in-house asset threshold at 30 June 2020.

However, the ATO noted it will be taking a more relaxed approach toward its compliance activities regarding these breaches and the implementation of the required plans.

“We will not undertake compliance activity if the rectification plan was unable to be executed because the market has not recovered or it was unnecessary to implement the plan as the market had recovered,” it said.

It also took the opportunity to reiterate its earlier messaging regarding the review of investment strategies, reminding trustees this plan for an SMSF should be reviewed at least annually and any decisions from the revision should be documented.

“Certain significant events, such as a market correction, should also prompt a review of your strategy and may require updating your investment strategy,” it said.

“Where the assets of an SMSF or the level of investment in those assets fall outside of the scope of your investment strategy, you should take action to address that situation, which could involve adjustments to investments or updating your investment strategy.

“All investment decisions must be made in accordance with the investment strategy of the fund. If in doubt, trustees should seek investment advice.”

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