Around 17,000 trustees of SMSFs with more than 90% of their funds in one asset have received a letter from the Australian Taxation Office (ATO) regarding a possible administrative penalty for failing to meet certain requirements.
The letter states:
“Our records indicate that your self-managed super fund (SMSF) investment strategy may hold 90% or more of its funds in one asset, or a single asset class.
This means that your fund may be at risk of not meeting the diversification requirement as outlined in the operating standard of the Superannuation Industry (Supervision) Regulations 1994.
As a trustee you are ultimately responsible for ensuring your investment strategy meets the requirements under the law. You could also be liable for an administrative penalty of $4,200 if your investment strategy fails to meet these requirements.”
The closing paragraph on the letter to trustees finishes with “You should be aware that if your auditor identifies that you have failed to rectify any non-compliance with the requirements listed above, this could result in the imposition of the above mentioned penalties.”
Upon learning about the penalty, many trustees panicked and called their accountants and auditors to ask if their investment strategies were compliant.
The ATO has also called the attention of the auditors of these funds, stating “We have recently written to all SMSF trustees where our records show that their SMSF may hold more than 90% or more of its investments in one asset or a single asset class. This is because the funds investment strategy may be at risk of not meeting the requirements in regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994.”
The closing paragraph on the letter to trustees “fail to rectify” implies their current investment strategy is wrong, but there are many reasons trustees have more than 90% of their assets in a single asset class and Trustees receiving the letter do not necessarily need to change their investment strategy.
Regulation 4.09 states that the fund should consider “(b) the composition of the entity’s investments as a whole, including the extent to which they are diverse or involve exposure of the entity to risks from inadequate diversification;”
Many funds with 90% in one asset class have considered diversification and their investment strategies do not breach regulation 4.09.
So what does this mean and what must be done? Find out from Effective PD’s webinar on SMSF investment strategies and diversification. Subscribe to Effective PD’s webinar. Visit www.effectivepd.com.au. Effective PD offers an innovative way for busy accountants to be on top of their game with continuing professional development in a brief, flexible and easy way.
