Creating a serious stir

ATO letters SMSF investment

The motive behind the ATO letters to SMSF trustees regarding investment strategies is becoming more evident as the recipients of the letters are revealed

A topic that has been dominating discussion in the sector over the past month has been the ATO letters sent out to 17,700 SMSFs in an effort to examine the investment strategies of these funds.

When the letters were first mailed out it wasn’t exactly clear what the motives behind it were but as time has passed the picture has become clearer.

Originally all we knew was the ATO sent letters were sent out to SMSFs that held a single asset, and in all likelihood a property, with the intention of checking if the investment strategies of these funds matched the portfolio holdings.

On the surface this seemed a little ambitious on the regulator’s part and perhaps a little unfair as anecdotal evidence I’ve gleaned over the past decade has shown you can run a very successful SMSF investing in one asset class alone.

But then the ATO clarified its position revealing the SMSFs that received one of its letters also employed a limited recourse borrowing arrangement (LRBA) to acquire the asset.

Bingo. This confirmed the exercise is all about trying to crackdown on property spruikers who are encouraging individuals to invest in property via an LRBA.

Now that the initiative has been able to be properly assessed it has received support from the majority of the SMSF community, but with one catch. The letters did include the threat of the trustees being levied with an administrative penalty of $4200 if the fund was found not to have a proper an appropriate investment strategy that matched its asset holdings. Opinion was the threat of this fine was too harsh.

The ATO argued if it was not included the exercise would not be taken seriously. It would appear the move has worked with evidence trustees who didn’t even receive a letter going through the process of reviewing their investment strategies.

Of course the ATO has also involved the auditing fraternity in the exercise placing the onus on them to satisfy themselves the SMSF in question has written investment strategies that comply with the Superannuation Industry (Supervision) Regulations.

All in all the ATO’s action have created quite a stir and it will be interesting to see the results that are netted.

One perhaps unintended consequence is if auditors get a little nervous under the ATO spotlight and feel the need to lodge contravention reports over an SMSF investment strategy that may be unnecessary. This could perhaps be seen as just a minor irritant.

It is also questionable whether or not it is an effective means to clamp down on property spruikers seeing it is a bit of a roundabout way of doing so. The logic being if there are instances where trustees who fall under the spell of these spruikers are faced with administrative fines future potential trustees will be discouraged from following the recommendations of these unscrupulous and often unlicensed operators.

One thing is for sure. These letters have certainly made SMSF trustees in general sit up and take the formulation and documentation of their investment strategies more seriously and if this enables better outcomes for generating wealth for their retirement then that has to be a positive thing.


Our Story

selfmanagedsuper is the definitive publication covering Australia’s SMSF sector. It uniquely offers online content tailored separately for SMSF professionals and individual trustees participating in the fastest growing and largest sector of the superannuation industry. As such, it is a must read for those wanting to stay informed about the latest news, regulatory developments, technical strategies, investments, compliance, legal and administration issues concerning SMSFs.

Copyright © SMS Trustee News 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital