The level of detail needed for investment documents for an SMSF is determined by the fund’s trust deed, its investment strategy and the requirements of the tax and superannuation legislation, a technical expert has warned.
SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said some SMSFs have resolutions and minutes for every investment transaction, while others do not go into much detail at all.
“Every time your SMSF makes or disposes of an investment, the transaction needs to be seen in the context of its investment strategy and the degree to which allowable asset classes, ranges and allocations are specified in that strategy,” Colley noted.
“This will have a bearing on the amount of documentation required.”
He highlighted the Superannuation Industry (Supervision) (SIS) Act does not include specific provisions for recording SMSF investments, which means investment reporting requirements for all super funds apply to SMSFs as well.
“In this context, it seems reasonable that the more detailed your fund’s investment strategy, the less likely it is to record investment decisions,” he said.
“However, in contrast, an investment strategy written in very general terms may mean the recording of investment transactions more frequently and in greater detail.
“For example, let’s take an SMSF that has a balanced option and directed contributions to that option each time. In this situation, the trustees would be unlikely to have a meeting each time a contribution is made to the fund and decide where the money should go.”
In contrast, if the fund’s investment strategy is couched in broad terms and a member wishes to select specific investments as permitted by the fund’s trust deed, then documents indicating whether the selection is consistent with the overall investment strategy of the fund are likely to be worthwhile, he noted.
He said he believes there are some areas where best practice seems to dictate that detailed documentation and/or minutes should be prepared, especially where the transaction is linked to specific provisions of the SIS Act and regulations.
These examples include the acquisition of direct property, any collectables and artwork that require documentation relating to insurance, storage and possible leasing, loans by the SMSF, any in-specie contribution or acquisition of an investment, and any in-house asset acquisition, he said.
In addition, any investment where the trustees act more in the capacity of an investment manager should be documented.
“Make sure you review the investment strategy or vary it when certain member-related events occur,” Colley said.
“This would include admission, resignation, death of a new member or the commencement of a pension benefit or lump sum.”
Further, he underscored other good reasons for recording information about the fund’s investments relate to the trustees being challenged.
“Documenting an investment decision can be used as a legal defence to justify why it was made,” he said.
“Documentation assists auditors in carrying out their responsibilities under the SIS legislation and for reporting to the ATO as the regulator of SMSFs.
“Keeping records for an SMSF serve many purposes to provide a ‘corporate memory’ for the fund, which may be required for compliance purposes, as well as to protect trustees from any unfounded challenges.”
The super law requires a fund’s accounting records, annual returns and other statements to be kept for at least five years, while minutes of meetings must be kept for at least 10 years.
